Flagstar Bank, FSB v. Giles
| Decision Date | 25 July 2012 |
| Docket Number | NO. 30,909,30,909 |
| Parties | FLAGSTAR BANK, FSB, Plaintiff-Appellee, v. KEITH M. GILES Defendant-Appellant, and JANE DOE GILES (true name unknown), FIRST STATE BANK N.M., JC CONSTRUCTORS, INC., JOHN DOE AND JANE DOE (true names unknown), Tenants Defendants. |
| Court | Court of Appeals of New Mexico |
This memorandum opinion was not selected for publication in the New Mexico Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date.
APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY
The Hopp Law Firm, LLC
Karen H. Weaver
Albuquerque, NM
for Appellee
The Walcott Law Firm, P.C.
Donald A. Walcott
Santa Fe, NMfor Appellant
This case involves the foreclosure of a first mortgage lien on a home owned by Defendant Keith M. Giles (Giles). Giles appeals the district court's denial of his Rule 1-060(B)(1) NMRA motion to set aside the default judgment entered against him. Giles asserts that it was an abuse of discretion for the district court to conclude that (1) he failed to prove the existence of excusable neglect based on his ongoing negotiations with Plaintiff Flagstar Bank (Flagstar) and (2) his allegations regarding Flagstar's standing and fraud in the perfection of the mortgage were insufficient to present a meritorious defense. We conclude that Giles did not sufficiently establish excusable neglect and affirm the district court on that basis.
Giles is a principal of a commercial real estate development company. In March 2007, Giles executed and delivered a promissory note (the Note) payable to Chicago Funding, Inc. To secure payment on the Note, Giles executed and delivered a real estate mortgage (the Mortgage) to Mortgage Electronic Registration Systems, Inc. (MERS). The property securing the Note was a Taos Ski Valley condominiumunit used by Giles as a second home. Ultimately, the Note and Mortgage were both assigned to Flagstar.
In August 2008, Giles failed to timely pay on the Note pursuant to its terms. Since that time, Giles has made no further payments on the Note, and Flagstar has been advancing the taxes and insurance on the property. As a result, Flagstar filed a complaint to foreclose on its Mortgage on December 17, 2008. It is undisputed that Giles was personally served with Flagstar's foreclosure complaint and summons on January 8, 2009. The summons specifically stated that if Giles failed "to file a timely answer or motion, default judgment may be entered against [him] for the relief demanded in the [c]omplaint." Giles did not file an appearance, an answer, or otherwise respond to the foreclosure complaint until after the default judgment was entered in favor of Flagstar on April 12, 2010.
Giles did contact Flagstar via email to attempt to structure a deed in lieu of foreclosure as a solution to the mortgage foreclosure lawsuit. For a period of approximately eighteen months, the parties discussed the possibility of structuring a deed in lieu of foreclosure. During that time period, Flagstar suspended moving forward on its foreclosure complaint. Throughout the course of their discussions, however, Flagstar repeatedly indicated that it would not consider Giles' request for a deed in lieu of foreclosure until he removed the existing liens against the property and the unit was repaired. Flagstar specifically stated that Giles needed to clear up allthe title encumbrances by March 1, 2010. In response, Giles spent weeks indicating that he had resolved all the issues on the unit and that the title would be cleared up within days. On February 23, 2010, having received no status update, Flagstar emailed Giles to remind him of the imminent March 1, 2010 deadline and to request another update on his efforts to clear title to the property. Giles responded that he could not meet the March 1, 2010 deadline and predicted that he was likely clear up title to the property by March 15. On March 16, however, Flagstar had received no indication from Giles that the liens on the property were removed. Giles had also made no attempt to contact Flagstar and explain his failure to satisfy the requirements for a deed in lieu. As a result, on April 12, 2010, Flagstar filed its motion for default judgment.
The district court entered the default judgment in favor of Flagstar on April 12, 2010. A sale of the property was scheduled for May 26, 2010, and a notice of sale was filed on April 28, 2010. Upon being informed by Flagstar's representative, Mr. Hammond, that the property was to be sold, Giles sent another email on April 27, 2010. At that time, only two of the liens had been removed, but Giles anticipated that the release of the third lien was imminent. Giles specifically stated that he was "anxious to reinstate the [deed in lieu] approvals for this unit[,]" and was hoping to hear from Flagstar "to discuss how to make that happen."
On May 13, 2010, Giles' counsel filed his entry of appearance in theforeclosure lawsuit. On May 18, 2010, Giles filed a motion to set aside default judgment. In support of his motion, Giles cited Rule 1-060(B)(1) and argued that his failure to timely respond to Flagstar's complaint constituted excusable neglect. Giles stated that "[f]rom the time this case was filed, Flagstar and Giles were negotiating a settlement of Giles' debt to Flagstar, which resulted in an agreement [for a deed in lieu of foreclosure] between the parties in April 2009." Giles attached the above mentioned email discussions as proof of this alleged agreement. In his motion, Giles did not contest Flagstar's standing to foreclose the Mortgage or raise any issue regarding the perfection of the Note or the Mortgage. These defenses were raised for the first time in his reply.
Flagstar agreed to postpone the May 26, 2010 foreclosure sale until after the hearing on Giles' motion to set aside the default judgment. The hearing, however, was postponed several times. As a result, Flagstar proceeded with the sale of the property to avoid further postponement of fees, but agreed not to confirm the sale until after the hearing. Flagstar also agreed to re-review Giles' request for a deed in lieu of foreclosure as the three liens on the property had finally been removed. In July 2010, however, Flagstar learned that the condominium unit had been gutted, and its value had decreased considerably as a result of this damage. At that time, Flagstar informed Giles that it would only consider a deed in lieu if Giles repaired the property to its original condition by September 15, 2010. When Giles had not completed therepairs by this date, Flagstar denied his latest request for deed in lieu and proceeded to address the motion to set aside the default judgment.
The district court denied Giles' motion to set aside the default judgment on October 21, 2010. At the hearing, the court explained that Rule 1-060(B) required Giles to demonstrate both excusable neglect and the existence of a meritorious defense. The district court reasoned that Giles had not demonstrated excusable neglect because the summons was very clear that default judgment could be entered if Giles did not file an answer to Flagstar's complaint. The court further found that there was no agreement between the parties, particularly in light of the fact that their ongoing discussions lasted for a year and a half. Although unnecessary in the absence of excusable neglect, the district court also addressed the meritorious defense prong of the Rule 1-060(B)(1) requirements. The court concluded that Giles had not raised a meritorious defense. Giles filed a timely appeal to this Court.
Giles contends that his failure to answer Flagstar's complaint was excusable neglect and that he raised a meritorious defense in light of his argument that Flagstar lacked standing to bring the complaint or, alternatively, based on his challenge to the validity of the assignment of the Mortgage and the Note to Plaintiff through MERS. As such, he asks this Court to reverse the district court's order denying his motion to set aside the default judgment and to remand for further proceedings.
Default judgments are not favored and a case should be heard on its merits whenever possible. N. M. Educators Fed. Credit Union v. Woods, 102 N.M. 16, 17, 690 P.2d 1010, 1011 (1984). However, it is within the district court's discretion to grant a default judgment. Id. As such, it is also within the district court's discretion to set aside a default judgment, and we will reverse a district court's ruling on a motion to set aside a default judgment only for an abuse of discretion. Id. "An abuse of discretion occurs when the ruling is clearly against the logic and effect of the facts and circumstances of the case." Kinder Morgan CO2 Co. v. State Taxation & Revenue Dep't, 2009-NMCA-019, ¶ 9, 145 N.M. 579, 203 P.3d 110 (internal quotation marks and citation omitted). There is no abuse of discretion when reasons exist that both support and detract from a district court decision. Id.
Rule 1-060(B)(1) requires the party seeking relief to demonstrate the existence of both excusable neglect and a meritorious defense. See Rodriguez v. Conant, 105 N.M. 746, 749, 737 P.2d 527, 530 (1987) (). If these two elements are found and there are no intervening equities in favor of the non-moving party, a court may set aside the default judgment. N. M. Educators Fed. Credit Union, 102 N.M. at 17, 690 P.2d at 1011; see also Kinder Morgan CO2 Co., 2009-NMCA-019, ¶ 14 (...
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