New Mexico Bank v. Lucas, A-1-CA-35486

• Decision Date: 06 February 2019
• Docket Number: No. A-1-CA-35486,A-1-CA-35486
• Parties: NEW MEXICO BANK & TRUST, Plaintiff/Counterdefendant-Appellee, v. DEL REANNE LUCAS, Defendant/Counterclaimant-Appellant, and BERNALILLO COUNTY; ERIK HIGLEY; PRIMROSE POINTE HOMEOWNERS' ASSOCIATION, INC.; and TRISH THURSTON, Defendants.
• Court: Court of Appeals of New Mexico

NEW MEXICO BANK & TRUST, Plaintiff/Counterdefendant-Appellee, v. DEL REANNE LUCAS, Defendant/Counterclaimant-Appellant,andBERNALILLO COUNTY;

ERIK HIGLEY; PRIMROSE POINTE HOMEOWNERS' ASSOCIATION, INC.;

and TRISH THURSTON, Defendants.

No. A-1-CA-35486

COURT OF APPEALS OF THE STATE OF NEW MEXICO

February 6, 2019

This memorandum opinion was not selected for publication in the New Mexico Appellate 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 Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions.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 BERNALILLO COUNTY

Nan G. Nash, District Judge

Jurgens & With, P.A.

James R. Jurgens

Santa Fe, NM

Keleher & McLeod, P.A.

Thomas C. Bird

Albuquerque, NM

for Appellee Cravens Law LLC

Richard H. Cravens, IV

Albuquerque, NM

for Appellant

MEMORANDUM OPINION

VANZI, Judge.

{1} This appeal arises from an in rem foreclosure action commenced by Plaintiff New Mexico Bank & Trust, successor-by-merger to Community Bank (collectively, Bank), after Defendant-Appellant Del Reanne Lucas (Borrower) failed to make payments on a home equity line of credit (HELOC). Borrower appeals from the district court's summary and default judgment, decree for foreclosure and order of sale (Final Order), entered following the district court's order granting Bank's summary-judgment motion and denying Borrower's summary-judgment motion. We affirm, although on grounds different from those stated by the district court.

BACKGROUND

{2} Borrower represents the facts as undisputed. On January 19, 2010, Borrower executed and delivered the HELOC at issue to Community Bank (a New Mexico-chartered bank) in the original amount of $78,000, secured by a duly recorded mortgage (Mortgage) creating a lien on property located at 8803 Primrose Court, NE in Albuquerque (Property). The Mortgage is a valid lien on the Property. NewMexico Bank & Trust, also a New Mexico-chartered bank, is the successor-by-merger to Community Bank and the owner and holder of the HELOC and Mortgage.

Borrower's Bankruptcy Discharge

{3} On May 20, 2014, Borrower filed a voluntary Chapter 7 bankruptcy petition, thereby staying "any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title[.]" 11 U.S.C. § 362(a)(5) (2012). Borrower's Schedule D (Creditors Holding Secured Claims) listed the HELOC debt in the amount of $76,100.

{4} On June 10, 2014, Bank's counsel asked in an email to Borrower's bankruptcy counsel whether Borrower would "reaffirm the debt to [Bank]" and whether Bank should "continue to send computer generated billing notices for the payments due to the debtor, or [if counsel took] the position that the stay prohibits it." Borrower did not consent to Bank's request. Borrower disputes that she herself received the email or notice of the inquiry from her bankruptcy counsel.

{5} On August 28, 2014, the bankruptcy court issued an order discharging Borrower's debts pursuant to11 U.S.C. § 727 (2012), including Borrower's personal (in personam) liability for the amount owed on the HELOC. A discharge in bankruptcy "operates as an injunction against the commencement orcontinuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived." 11 U.S.C. § 524(a)(2) (2012). The discharge injunction does not enjoin enforcement of a creditor's lien against real property. See, e.g., Johnson v. Home State Bank, 501 U.S. 78, 83-84 (1991) (explaining that the bankruptcy discharge "extinguishes only the personal liability of the debtor"; "the [Bankruptcy] Code provides that a creditor's right to foreclose on the mortgage survives or passes through the bankruptcy"; and "[e]ven after the debtor's personal obligations have been extinguished, the mortgage holder still retains a right to payment in the form of its right to the proceeds from the sale of the debtor's property" (internal quotation marks and citation omitted)).

Bank's Post-Discharge Foreclosure Action

{6} Borrower did not make the monthly HELOC payment due August 21, 2014, and failed to make other monthly payments due thereafter. On January 22, 2015, Bank filed a complaint for foreclosure (in rem), seeking to foreclose on the Property.¹ In addition to allegations concerning Borrower's default and Bank's right to foreclose, the complaint noted the bankruptcy discharge of Borrower's in personam liability on the HELOC. The complaint did not allege that Bank provided notice to Borrower under New Mexico's Home Loan Protection Act(HLPA), NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through 2009), which provides, in pertinent part: "Before an action is filed to foreclose or collect money due pursuant to a home loan or before other action is taken to seize or transfer ownership of property subject to a home loan, the creditor or creditor's assignee of the loan shall deliver to the borrower a notice of the right to cure the default informing the borrower of" certain information. Section 58-21A-6(A).

{7} Borrower's answer to the complaint asserted several general affirmative defenses, which did not include a defense based on HLPA, and reserved the right to assert additional defenses. After Bank moved to compel discovery responses from her, Borrower filed an "Objection to Written Discovery, Deposition, and Motion for Protective Order," arguing (among other things) that the HELOC debt had been discharged in bankruptcy; Bank was the junior mortgage holder and had failed to notify the senior mortgage holder of the foreclosure action; and Bank's discovery "furthers the abuse of process that started with the filing of a Complaint without probable cause." In a "Reply in Support of Her Objection," Borrower also asserted that she was not in default.

{8} Months later, on November 10, 2015, Borrower moved to vacate the district court's scheduling order and trial on the grounds that Bank "did not give Notice or a chance to Cure before filing the Complaint"; Bank was "prohibited from filing the Complaint in Foreclosure without giving Notice and the opportunity to Cure"(citing Section 58-21A-6); and "[t]he violations of state law and covenant [of good faith and fair dealing] require [Borrower] to seek leave of the Court to amend her Answer and make Counterclaims." In opposing Borrower's motion, Bank stated that Borrower "did not consent to reaffirming the debt or that [Bank] could continue to send computer notices of payments due" and that, in answering the foreclosure complaint, Borrower did not raise a HLPA-based defense or assert any counterclaims. Bank argued that Borrower's motion was untimely and that amendment would be futile because, while "a post-discharge act to enforce a lien against real property of a debtor (to collect a debt in rem), does not violate the discharge injunction[,]" Bank "could not send an HLPA notice without violating the discharge injunction and exposing itself to being held in contempt of court and to damages[,]" and "[p]ursuant to the Supremacy Clause, [Bank]'s duty to obey federal law overrides any state law duty to send a HLPA notice." "If [Borrower] is allowed to assert a counterclaim under the HLPA," Bank argued, "she will be asking th[e district c]ourt [to] hold [Bank] liable for not sending a notice that would have exposed [Bank] to being held in contempt of the Bankruptcy Court."

{9} On January 4, 2016, Bank moved to dismiss the foreclosure action without prejudice, stating, "While [Bank] believes that an HLPA notice was preempted by the discharge injunction, to avoid further unnecessary litigation on the issue [Bank] will consent to dismissal of this case [to allow the Bank to provide the HLPANotice.]" The record contains no response to the motion from Borrower. On January 5, 2016, Borrower moved to amend her answer and assert counterclaims, arguing the same grounds stated in her earlier motion to vacate. In a January 20, 2016 order, the district court ruled that Bank's motion to dismiss and Borrower's motion to amend were untimely, but granted Borrower's motion for leave to amend while denying her motion to vacate.

{10} The affirmative defenses asserted in Borrower's amended answer, filed January 22, 2016, include that Bank failed to comply with state and federal law in seeking foreclosure and failed to comply with and violated HLPA, and that HLPA notice and right to cure "is a mandatory condition precedent to commencing suit." The counterclaim alleged that Bank "was prohibited from filing the Complaint in Foreclosure without giving Notice and the Right to Cure pursuant to [Section] 58-21A-6(A)" and asserted entitlement to recover damages and attorney fees for violations of HLPA, the Unfair Practices Act (UPA), NMSA 1978, §§ 57-12-1 to -26 (1967, as amended through 2009), and the covenant of good faith and fair dealing, and for malicious abuse of process and civil conspiracy.

Dispositive Motions

{11} On December 4, 2015, (before filing the amended answer and counterclaim) Borrower moved for summary judgment on the foreclosure complaint, arguing that Bank "is prohibited from filing the Complaint in Foreclosure without giving Noticeand the opportunity to Cure" (citing Section 58-21A-6); Bank's failure "to give Notice or a chance to Cure violates the covenant of good faith and fair dealing"; and the filing of the foreclosure action without first providing notice and a cure opportunity constitutes a violation of HLPA and a per se violation of the UPA. Borrower also argued, relying exclusively on Bank of N.Y. v. Romero, 2014-NMSC-007, 320 P.3d 1, that "HLPA is not preempted by federal law."

{12} On December 10, 2015, Bank moved for summary judgment, arguing (as relevant...