Deutsche Bank Nat'l Trust Co. v. Beneficial N.M. Inc.

• Citation: 335 P.3d 217
• Decision Date: 01 May 2014
• Docket Number: 31,503.,No. 34,726.,34,726.
• Parties: DEUTSCHE BANK NATIONAL TRUST COMPANY, As Trustee for Morgan Stanley ABS Capital 1 Inc.Trust 2006–NC4, Plaintiff–Appellee, v. BENEFICIAL NEW MEXICO INC., d/b/a Beneficial Mortgage Co.; and The Unknown Spouse of Johnny Lance Johnston, Defendants, Johnny Lance Johnston, Defendant–Appellant.
• Court: Court of Appeals of New Mexico

335 P.3d 217

DEUTSCHE BANK NATIONAL TRUST COMPANY, As Trustee for Morgan Stanley ABS Capital 1 Inc.Trust 2006–NC4, Plaintiff–Appellee

v. BENEFICIAL NEW MEXICO INC., d/b/a Beneficial Mortgage Co.; and The Unknown Spouse of Johnny Lance Johnston, DefendantsJohnny Lance Johnston, Defendant–Appellant.

31,503.

No. 34,726.

Court of Appeals of New Mexico.

May 1, 2014.

Certiorari Granted, Aug. 29, 2014,

Holland & Hart LLP, Larry J. Montaño, Santa Fe, NM, for Appellee.

Jane B. Yohalem, Santa Fe, NM, for Appellant.

OPINION

ZAMORA, Judge.

{1} Johnny Lance Johnston (Homeowner) appeals a judgment of foreclosure entered against him and in favor of Deutsche Bank National Trust Company (the Bank) after a bench trial in the district court. On appeal, Homeowner challenges the Bank's standing to foreclose. He also argues against the validity of the loan and challenges evidentiary rulings by the district court. Because the Bank failed to establish that it had standing to foreclose when it filed its complaint for foreclosure, we reverse.

BACKGROUND

{2} In 2006, Homeowner refinanced the mortgage on his home through New Century Mortgage Corporation (New Century). He executed a promissory note made payable to New Century. The note was secured by a mortgage on Homeowner's home. In 2008, Homeowner defaulted on the loan, and in February 2009, the Bank filed a complaint for foreclosure. Attached to the complaint was an unindorsed copy of Homeowner's note made payable to New Century. The complaint asserted that Homeowner, in 2006, executed a note and mortgage, which were later assigned to the Bank; that Homeowner had not made any payments since July of 2008; and that the Bank was therefore entitled to foreclose upon the property for the remaining balance of the loan.

{3} On August 9, 2010, Homeowner filed a motion to dismiss, arguing in pertinent part that, because the note attached to the complaint showed New Century to be the current owner of the mortgage, the Bank failed to show ownership of the note at the time the Bank's complaint was filed and that the complaint should be dismissed. The Bank filed its response on August 31, 2010, two weeks before the scheduled trial. The Bank attached a copy of an assignment of Homeowner's mortgage (assignment) to its response. The assignment reflects that New Century assigned the mortgage to the Bank on February 7, 2006, a week after the note and mortgage were executed by Homeowner. However, the assignment was not recorded in the land records office until December 9, 2009, or nine months after the complaint was filed.

{4} The trial commenced on September 16, 2010. At trial the Bank introduced the original note, indorsed in blank. The Bank did not introduce any evidence to show when the note was indorsed or when the Bank came to possess the indorsed note. After one day of trial, due to Homeowner's medical condition, the trial was continued to October 5, 2010. On September 21, 2010, during the interim between the first and second days of the continued trial, Homeowner filed a motion requesting that the judge permit Lynn E. Szymoniak to testify as an expert regarding his challenge to the assignment as a false and fabricated document. Homeowner further requested that the matter of whether his expert would be allowed to testify be addressed in a hearing at the beginning of the resumption of trial. On October 5, 2010, before resuming the bench trial, the district court heard arguments regarding Homeowner's motion to allow expert testimony regarding the alleged fraudulent nature of the assignment. The district court found that Homeowner's request was untimely and that the proposed expert testimony was not relevant. Homeowner's motion was denied. The trial proceeded and was concluded the same day.

{5} After the trial, the district court entered findings of fact and conclusions of law, which provided that New Century Bank validly assigned its interest to the Bank, that Homeowner defaulted on the note, and that the Bank was entitled to a foreclosure judgment. The district court entered a judgment of foreclosure from which Homeowner now appeals.

DISCUSSION

{6} On appeal, Homeowner argues: (1) the documentary evidence submitted by the Bank to establish its standing to enforce the note and to foreclose on the mortgage is insufficient as a matter of law; (2) the district court abused its discretion in refusing to allow Homeowner's expert witness to testify as to the authenticity of the Bank's assignment; (3) the Bank violated NMSA 1978, § 58–21A–4(B) (2003, amended 2009) of the New Mexico Home Loan Protection Act (HLPA), NMSA 1978, §§ 58–21A–1 to –14 (2003, as amended through 2009); and (4) the Bank perpetrated a fraud on the court by seeking to summarily foreclose without establishing standing and by relying on a fraudulent assignment to establish standing. Because we conclude that the Bank did not have standing to foreclose, we do not address Homeowner's arguments related to his proposed expert witness and alleged HLPA violation. We further conclude that Homeowner did not properly preserve his argument that the Bank perpetrated a fraud on the court and we decline his request to impose sanctions.

A. Standard of Review

{7} The determinative issues in this case involve evidentiary challenges to the district court's findings of fact and conclusions of law. Specifically, the district court determined the Bank's standing as a factual matter, therefore “we apply a substantial evidence standard of review.” Miller v. Bank of Am., N.A., 2014–NMCA–053, ¶ 11, 326 P.3d 20, 2013 WL 6530556 (No. 31,463, Dec. 10, 2013). “ ‘Substantial evidence’ means relevant evidence that a reasonable mind could accept as adequate to support a conclusion.” Sims v. Sims, 1996–NMSC–078, ¶ 65, 122 N.M. 618, 930 P.2d 153. In reviewing a substantial evidence claim, “[t]he question is not whether substantial evidence exists to support the opposite result, but rather whether such evidence supports the result reached.” Las Cruces Prof'l Fire Fighters v. City of Las Cruces, 1997–NMCA–044, ¶ 12, 123 N.M. 329, 940 P.2d 177. “[W]e will not reweigh the evidence nor substitute our judgment for that of the fact finder.” Id. We consider the evidence in the light most favorable to the prevailing party and disregard any inferences and evidence to the contrary. Williams v. Williams, 1989–NMCA–072, ¶ 7, 109 N.M. 92, 781 P.2d 1170.

B. Deutsche Bank Lacks Standing to Foreclose

{8} While this case was pending, our Supreme Court decided Bank of N.Y. v. Romero, 2014–NMSC–007, 320 P.3d 1, which sets forth how our courts are to decide mortgage foreclosure cases. Romero clarified that standing is a jurisdictional prerequisite for a cause of action and must be established at the time the complaint is filed. Id. ¶ 17. In order to establish standing to foreclose, a lender must show that, at the time it filed its complaint for foreclosure, it had: (1) a right to enforce the note, which represents the debt, and (2) ownership of the mortgage lien upon the debtor's property.See id. (stating that “[t]he Bank of New York ... was required to demonstrate under New Mexico's Uniform Commercial Code (UCC) that it had standing to bring a foreclosure action at the time it filed suit.... [It] had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action.”).

1. The Bank's Right to Enforce the Note

{9} Though the Bank maintains that it was the holder of Homeowner's note at the time it filed for foreclosure, it attached a copy of the note to its complaint that was unindorsed and made payable to New Century. In Romero, our Supreme Court expressly held that an unindorsed note made payable to a third party does not establish standing to foreclose. 2014–NMSC–007, ¶¶ 22, 23, 320 P.3d 1. (“Possession of an unindorsed note made payable to a third party does not establish the right of enforcement, just as finding a lost check made payable to a particular party does not allow the finder to cash it.”). Therefore, the note initially attached to the Bank's complaint for foreclosure was insufficient to establish its right to enforce the note.

{10} At trial, twenty months after the complaint for foreclosure was filed, the Bank produced a note that was significantly different from the one attached to its complaint. The note produced at trial included a blank undated indorsement. “A blank indorsement ... does not identify a person to whom the instrument is payable but instead makes it payable to anyone who holds it as bearer paper.” Id. ¶ 24. Typically, the bearer of a note indorsed in blank is the holder of that note. See NMSA 1978, § 55–3–104(a)(1), (b), (e) (1992) (defining “negotiable instrument” as including a “note” made “payable to bearer or to order”); NMSA 1978, § 55–3–301 (1992) (defining “[p]erson entitled to enforce” a negotiable instrument); see also Romero, 2014–NMSC–007, ¶ 26, 320 P.3d 1 (“[The] blank indorsement ... established the [b]ank as a holder because the [b]ank [was] in possession of bearer paper.”). The Bank argues that its production of the note bearing an undated indorsement in blank at trial was sufficient to establish its right to enforce the note. We disagree.

{11} Romero did not directly address whether an undated indorsement in blank, produced after the filing of the foreclosure complaint is sufficient to establish standing. In that case, the Bank of New York attached an unindorsed note to its complaint and, at trial, admitted a different “original” note that contained two undated indorsements. 2014–NMSC–007, ¶¶ 10, 16, 320 P.3d 1. The first indorsement was blank, and the second was a special indorsement made payable to JPMorgan Chase. Id. Our Supreme Court agreed that if the note contained only a blank indorsement, that blank indorsement would have established the Bank of N.Y. as holder because it would have been in possession of bearer paper. Id. ¶ 26. However, because the note contained another restrictive,...