Deutsche Bank Nat'l Trust Co. v. Johnston

• Decision Date: 03 March 2016
• Docket Number: No. S–1–SC–34726.,S–1–SC–34726.
• Citation: 369 P.3d 1046
• Parties: DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for Morgan Stanley ABS Capital 1 Inc. Trust 2006–NC4, Plaintiff–Petitioner, v. Johnny Lance JOHNSTON, Defendant–Respondent.
• Court: New Mexico Supreme Court

369 P.3d 1046

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

v.Johnny Lance JOHNSTON, Defendant–Respondent.

No. S–1–SC–34726.

Supreme Court of New Mexico.

March 3, 2016.

Holland & Hart LLP, Larry J. Montaño, Santa Fe, NM, Murr Accomazzo & Siler, PC, Eric P. Accomazzo, Jamie G. Siler, James P. Eckels, Denver, CO, for Petitioner.

Law Office of Jane B. Yohalem, Jane B. Yohalem, Santa Fe, NM, for Respondent.

Daniel Yohalem, Santa Fe Neighborhood Law Center, Frederick M. Rowe, Katherine Elizabeth Murray, Joshua David Schwartz, Santa Fe, NM, for Amici Curiae Santa Fe Neighborhood Law Center, Mary and Joseph Romero, Professor Nathalie Martin, United South Broadway, Somos Un Pueblo Unidos, The Santa Fe Neighborhood Network, Homewise, Inc., Santa Fe Area Home Builders Association, and New Mexico Foreclosure Defense Group.

OPINION

CHÁVEZ

, Justice.

{1} This case requires us once again to examine traditional rules of jurisdiction and standing in the context of modern mortgage foreclosure actions. In Bank of New York v. Romero, 2014–NMSC–007, ¶¶ 19–38, 320 P.3d 1

, we concluded that the plaintiff did not establish standing to foreclose on the defendant's home when it could not prove that it had the right to enforce the promissory note on the mortgage at the time it filed suit. See NMSA 1978, § 55–3–301 (1992) (defining " ‘[p]erson entitled to enforce’ [a negotiable] instrument"). In the present case, Petitioner Deutsche Bank National Trust Company, acting as trustee for Morgan Stanley ABS Capital 1 Inc. Trust 2006–NC4 (Deutsche Bank), filed a complaint seeking foreclosure on the home of Respondent Johnny Lance Johnston (Homeowner) and attached to its complaint an unindorsed note, mortgage, and land recording, both naming a third party as the mortgagee. Deutsche Bank later provided documentation and testimony showing that (1) a document assigning the mortgage to Deutsche Bank was dated prior to the filing of the complaint but recorded after the complaint was filed; (2) Deutsche Bank possessed a version of the note indorsed in blank at the time of trial; and (3) a servicing company began servicing the loan to Homeowner on behalf of Deutsche Bank prior to the filing of the complaint. After receiving this evidence, the district court found that Deutsche Bank had standing to foreclose on Homeowner's property. The Court of Appeals disagreed, opining that "standing is a jurisdictional prerequisite for a cause of action," and concluded that the evidence provided by Deutsche Bank did not establish its standing as of the time it filed its complaint. Deutsche Bank Nat'l Tr. Co. v. Beneficial N.M. Inc.,

2014–NMCA–090, ¶¶ 8, 13–15, 335 P.3d 217, cert. granted, 2014–NMCERT–008, 334 P.3d 425. Although we hold that standing is not a jurisdictional prerequisite in this case, we nonetheless affirm the Court of Appeals's ultimate conclusion that the evidence provided by Deutsche Bank did not establish standing.

I. BACKGROUND

{2} On January 31, 2006, Homeowner refinanced his home by executing a promissory note made payable to New Century Mortgage Corporation (New Century). The note was secured by a mortgage on Homeowner's property in Las Cruces. Homeowner defaulted on his loan payments beginning in August 2008, and received a letter notifying him of his default dated October 12, 2008 from American Servicing Company (ASC), a loan servicing company.

{3} On February 24, 2009, Deutsche Bank filed a complaint for foreclosure. Deutsche Bank attached two exhibits to its complaint: (1) a January 31, 2006 promissory note made payable to New Century which did not contain an indorsement; and (2) a January 31, 2006 mortgage on Homeowner's property recorded in the Doña Ana County Office of the County Clerk on February 7, 2006 by New Century, which the County Clerk also names as the mortgagee. In its complaint, Deutsche Bank alleged that it owned the mortgage through assignment and was a holder in due course of the note. Homeowner "acknowledge[d]" this allegation in his pro se answer to Deutsche Bank's complaint.

{4} On August 11, 2010, Homeowner filed an amended motion to dismiss for lack of standing, contending that Deutsche Bank "did not show ownership of the note, nor a security interest," and that it provided no other evidence that it was the holder of the note as of the date that it filed its complaint. Deutsche Bank's response to Homeowner's motion to dismiss attached an assignment of mortgage document dated February 7, 2006 and recorded in Doña Ana County on December 9, 2009 as proof that Deutsche Bank held the note at the time it filed the complaint.¹

{5} The district court set the hearing on Homeowner's motion to dismiss for the same day as trial. After concluding that Homeowner's arguments on the motion to dismiss would be similar to his arguments on the merits, the district court took Homeowner's motion under advisement and agreed to consider it during the bench trial on the merits.

{6} At trial, Deutsche Bank offered further evidence to prove that it owned the note. First, Deutsche Bank proffered a version of the January 31, 2006 note that was indorsed in blank by New Century. This new note was identical to the original note attached to Deutsche Bank's complaint except that the note attached to the complaint did not contain any indorsement. Second, Deutsche Bank offered the testimony of Erin Hirzel Roesch, a litigation specialist for the loan servicing company. Ms. Roesch was employed by Wells Fargo Bank, NA, which she testified is effectively the same company as ASC. Ms. Roesch testified based on her review of the file on Homeowner's mortgage. She testified that because the proffered note was indorsed in blank, Deutsche Bank, as holder of the note, could act as the lender of the note; that Deutsche Bank was assigned the mortgage on February 7, 2006; and that her company began servicing the loan in July 2006.

{7} The district court concluded that Deutsche Bank was "the current holder of the Note and Mortgage." The court also concluded that Homeowner was "in default in payment of the principal and interest on the Note and Mortgage described in [Deutsche Bank's] Complaint." Based on these findings, the district court then held that Deutsche Bank was entitled to a foreclosure judgment on Homeowner's property.

{8} The Court of Appeals reversed and remanded to the district court "with instructions to vacate its judgment of foreclosure" because Deutsche Bank lacked standing to foreclose.

Deutsche Bank Nat'l Tr. Co., 2014–NMCA–090, ¶¶ 15, 18, 335 P.3d 217

. The Court of Appeals reasoned that under Bank of New York, 2014–NMSC–007, ¶ 17, 320 P.3d 1, "standing is a jurisdictional prerequisite for a cause of action and must be established at the time the complaint is filed." Deutsche Bank Nat'l Tr. Co., 2014–NMCA–090, ¶ 8, 335 P.3d 217. Accordingly, "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." Id. (emphasis added). In practical terms, the Court of Appeals's decision requires a party seeking to establish its right to enforce a note to either produce an original or properly indorsed note with its complaint for foreclosure or to later introduce a dated indorsed note executed prior to the initiation of the foreclosure suit. See id. ¶ 12. The Court concluded that in this case, "neither the unindorsed copy of the note produced with the foreclosure complaint nor the indorsed note produced at trial were sufficient to show that [Deutsche Bank] held the note when it filed the complaint" and that the assignment of mortgage proffered by Deutsche Bank had "no bearing on the validity or the timing of the note's indorsement." Id. ¶¶ 13–14.

{9} We granted Deutsche Bank's petition for certiorari to review (1) whether standing is jurisdictional in mortgage foreclosure cases; (2) whether the Court of Appeals erred in interpreting Bank of New York to require a plaintiff who presents an original, indorsed-in-blank promissory note at trial to establish that it is the holder of the note by presenting an indorsement dated prior to the filing of the complaint or by attaching an indorsed copy of the note to the complaint; and (3) whether the Court of Appeals erred by concluding that an assignment of mortgage dated prior to the filing of the complaint cannot by itself establish standing. While we take this opportunity to clarify that standing is not a jurisdictional prerequisite in mortgage foreclosure cases in New Mexico, we otherwise affirm the result reached by the Court of Appeals based on principles of prudential standing.

II. DISCUSSION

A. The Doctrine of Standing in New Mexico

{10} Deutsche Bank challenges the Court of Appeals's statement that "standing is a jurisdictional prerequisite for a cause of action." Deutsche Bank Nat'l Tr. Co., 2014–NMCA–090, ¶ 8, 335 P.3d 217

(citing Bank of N.Y., 2014–NMSC–007, ¶ 17, 320 P.3d 1 ). Deutsche Bank accurately observes that our jurisprudence has previously recognized that standing is jurisdictional in the context of statutory causes of action rather than all causes of action. Bank of N.Y., 2014–NMSC–007, ¶ 17, 320 P.3d 1. With that distinction in mind, Deutsche Bank then argues that the cause of action to enforce a promissory note existed at common law and was not created by statute. Deutsche Bank concludes that standing in this case therefore cannot be jurisdictional. We agree with Deutsche Bank that standing is not jurisdictional in this case because the cause of action to enforce a promissory note was not created by statute. Therefore, only prudential rules of standing apply to the claims in this case.

{11} As a general rule, "standing in our courts is not derived from the state constitution, and is not jurisdictional." ACLU of N.M. v. City of Albuquerque, 2008–NMSC–045...