Tentative Rulings for Department 403

3 Tentative Ruling

Re: Burt v. Bank of New York Mellon
Case No. 14CECG00641

Hearing Date: June 4th, 2014 (Dept. 403)

Motion: Defendants’ Demurrer to Complaint

Tentative Ruling:
To overrule the demurrer to the complaint, in its entirety. (Code Civ. Proc. §
430.10(e).) Defendants shall serve and file their answer within ten days of the date of
service of this order.

Explanation:
Defendants have demurred to the entire complaint on the ground that it fails to
state facts sufficient to constitute a cause of action. Their first argument is that plaintiffs
are required to allege that they are ready, willing and able to tender the entire amount
they owe under the loan in order to state a claim for wrongful foreclosure, or related
causes of action.

In Arnolds Management Corp. v. Eischen (1984) 158 Cal.App.3d 575, the Court of
Appeal stated, “It is settled that an action to set aside a trustee’s sale for irregularities in
sale notice or procedure should be accompanied by an offer to pay the full amount of
the debt for which the property was security.” (Arnolds Management Corp. v. Eischen
(1984) 158 Cal.App.3d 575, 578-579, emphasis added.)

Here, however, plaintiffs are not attempting to set aside a completed trustee’s
sale. They are instead trying to prevent the foreclosure sale from happening at all.
Thus, the rule stated in Arnolds Management does not apply here, because the
trustee’s sale has not yet taken place.

Also, in Glaski v. Bank of America, N.A. (2013) 218 Cal.App.4th 1079, the Fifth
District Court of Appeal held that a plaintiff who challenges a pending foreclosure
proceeding based on alleged defects in the assignment of the note and deed of trust
that render the assignment void does not have to allege tender in order to state a valid
claim for wrongful foreclosure and related claims.

“Tender is not required where the foreclosure sale is void, rather than voidable,
such as when a plaintiff proves that the entity lacked the authority to foreclose on the
property. [¶] Accordingly, we cannot uphold the demurrer to the wrongful foreclosure
claim based on the absence of an allegation that Glaski tendered the amount due
under his loan.” (Id. at 1100, internal citations omitted.)

Here, plaintiffs have alleged that the assignment of the note and deed of trust is
void because it was completed after the closing date of the trust. (Complaint, ¶¶ 21-
26.) Thus, plaintiffs are not required to allege tender of the full amount due under the
loan in order to support their claims. The court declines to sustain the demurrer to the
extent it is based on the tender rule.

Next, defendants argue that plaintiffs have not stated a claim under Civil Code
section 2923.6 because the statute only applies to “owner-occupied residential”
properties (Civil Code § 2924.15(a)), and plaintiffs have admitted that their property is
not residential. Plaintiffs have alleged that the County of Fresno refused to recognize
their property as residential, and County records only show a “mobile home” on the
property. (Complaint, ¶ 29.)

Section 2924.15(a) does not define what “residential” property is, but it does
state that “‘owner-occupied’ means that the property is the principal residence of the
borrower and is security for a loan made for personal, family, or household purposes.”
(Civ. Code, § 2924.15(a).) Here, the plaintiffs have alleged that the property is their
principal residence, and that it was security for the loan made for the personal, family
or household purposes. (Complaint, ¶¶ 28, 62.) While the property may not be
recognized as containing a residence in the County’s records, the plaintiffs have
adequately alleged that they are actually residing on the property, and that the loan
was made to purchase their family home. Therefore, plaintiffs have sufficiently alleged
that the property is “owner-occupied residential real property” for the purpose of
section 2923.6(a).

Defendants also argue that plaintiffs have not alleged any actual violation of
section 2923.6, because section 2923.6 only bars foreclosure proceedings when a loan
modification application is pending, and here the plaintiffs admit that they did not
submit their loan modification application until after the notice of default was issued.

Civil Code section 2923.6(c) states, in part, “If a borrower submits a complete
application for a first lien loan modification offered by, or through, the borrower’s
mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized
agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale,
while the complete first lien loan modification application is pending. A mortgage
servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice
of default or notice of sale or conduct a trustee’s sale until any of the following occurs:
(1) The mortgage servicer makes a written determination that the borrower is not
eligible for a first lien loan modification, and any appeal period pursuant to subdivision
(d) has expired.”

Here, plaintiffs allege that they were attempting to obtain a loan modification
application in June of 2013, but they did not actually receive the application until July
3rd, 2013. (Complaint, ¶¶ 38, 40.) They completed and submitted the loan modification
application on July 24th, 2013 by Federal Express. (Id. at ¶ 40.) However, the notice of
default was issued on June 21st, 2013, before the loan modification application was
completed or sent out. (Request for Judicial Notice, Exhibit 3. The court intends to take
judicial notice of the notice of default and the other documents attached to the
request for judicial notice as officially recorded documents.) Thus, plaintiffs cannot
show that the notice of default was issued in violation of section 2923.6.

On the other hand, plaintiffs also allege that defendants issued the notice of
trustee’s sale on February 12th, 2014, while the loan modification process was still
pending. (Complaint, ¶¶ 41-55.) The Bank appears to claim that the notice of trustee’s
sale was sent out after the first application for loan modification had been denied, and
before plaintiffs resubmitted a new application. However, the allegations of the
complaint appear to indicate that the first loan modification application was pending
at the time the notice of trustee’s sale was served on plaintiffs. (Complaint, ¶¶ 51, 55.)
Defendants have not shown that there was a written denial of the application before
the notice of trustee’s sale was issued. Therefore, the plaintiffs have sufficiently alleged
that the defendants violated section 2923.6 by issuing the notice of trustee’s sale while
the loan modification application was pending.

With regard to the second cause of action for wrongful foreclosure, defendants
argue that the plaintiffs cannot show that they were injured by the alleged irregularities
in the assignment process, as there was no change in their obligations under the note.
They also contend that plaintiffs have no standing to allege defects in the assignment,
because they were not parties to the assignment. However, the Fifth District Court of
Appeal rejected these arguments in Glaski v. Bank of America, supra, 218 Cal.App.4th
1079.

In Glaski, the Court of Appeal found that the plaintiff had alleged sufficient facts
to support claims for wrongful foreclosure, quiet title, declaratory relief, cancellation of
instruments, and unfair business practices under Business and Professions Code section
17200 based on alleged defects in the assignment of the note and deed of trust.
(Glaski, supra, at 1101.) The Glaski court found that the allegation that the assignment
was made after the closing date of the trust was sufficient to show that the assignment
was void, and thus the lender had no authority to foreclose on the property. (Id. at
1096-1097.) The Glaski court also rejected the argument that the borrower has no
standing to challenge the assignment because the borrower was not a party to the
assignment. (Id. at 1094-1095.)

Here, plaintiffs’ allegations are similar to those in Glaski, since plaintiffs are
alleging that the deed of trust and note were not transferred or assigned properly
before the closing date for the trust. (Complaint, ¶¶ 23-25.) Therefore, under Glaski, the
plaintiffs have stated a valid claim for wrongful foreclosure, because Bank of America
and Bank of New York allegedly have no standing to foreclose on the note.
Conversely, plaintiffs do have standing to assert the improper assignment, because
they are alleging that the assignment is void, and not just voidable. (Glaski, supra, at
1094-1095.) The court in Glaski did not require any showing that the borrower suffered
actual prejudice from the improper assignment, since the improper assignment
rendered the entire assignment void. (Ibid.) Therefore, the court intends to overrule the
demurrer to the second cause of action for wrongful foreclosure.

Likewise, the third cause of action for cancellation of the notice of default,
assignment of the deed of trust, and notice of trustee’s sale is also sufficiently alleged.

In Glaski, the court specifically found that plaintiff could state a claim for, among other
things, cancellation of the allegedly invalid instruments based on the defects in the
assignment. (Glaski, supra, at 1101.) Here, plaintiffs have made allegations that the
assignment was void, so the court will permit plaintiffs to proceed with their cancellation
of instruments cause of action and overrule the demurrer to the third cause of action.
For the same reasons, plaintiffs have adequately alleged their quiet title claim in
the fourth cause of action. Glaski specifically held that plaintiff could allege a quiet title
claim based on the same theory alleged in the present case. (Glaski, supra, at 1101.)
Defendants argue that plaintiffs cannot state a quiet title claim against them because
plaintiffs have not alleged full payment of the note. However, plaintiffs have alleged
that defendants have no authority to collect payments on the note or foreclose on the
property because of the improper assignment. (Complaint, ¶ 84.) Therefore, plaintiffs
do not have to allege that they paid the note in order to allege a quiet title claim
against defendants.

Finally, defendants demur to the plaintiffs’ fifth cause of action for unfair business
practices under Business and Professions Code section 17200, contending that plaintiffs
have not alleged a predicate violation of any statute, or that they have suffered any
loss of money or property as a result of defendants’ actions. However, as discussed
above, plaintiffs have adequately alleged violations of Civil Code section 2923.6 by
proceeding with the foreclosure while the loan modification application was pending,
as well as falsely claiming that they were entitled to collect on the note when allegedly
the assignment of the note and deed of trust was invalid. Thus, plaintiffs have
sufficiently alleged predicate violations of other laws to support their UCL claim. In
addition, plaintiffs have alleged that they are in danger of losing their home due to
defendants’ unfair business practices. Therefore, plaintiffs have sufficiently alleged their
claim under the UCL, and the court intends to overrule the demurrer to the fifth cause
of action.

Pursuant to CRC 3.1312 and CCP §1019.5(a), no further written order is necessary.
The minute order adopting this tentative ruling will serve as the order of the court and
service by the clerk will constitute notice of the order.

Tentative Ruling
Issued By: KCK on 6/3/2014 .
(Judge’s initials) (Date)

IN THE CIRCUIT COURT OF THE EIGHTH JUDICIAL CIRCUIT
IN AND FOR ALACHUA COUNTY, FLORIDA

BANK OF NEW YORK AS TRUSTEE
FOR THE CIRTIFICATES HOLDERS CWABS,
INC., ASSET-BACKED CERTIFICATES
SERIES 2005-14,
Plaintiff,

v.

OLIVIA HANNIBLE, et al.,
Defendants.

ORDER GRANTING MOTION FOR RELIEF AND VACATING FINAL JUDGMENT
AND JUDICIAL SALE

THIS CAUSE came before the Court on Defendant Olivia Parler’s (formerly Olivia Hannible)
motion and amended motion to stay writ of possession, motion for relief from final judgment, and
motion to set aside judicial sale. All parties were properly noticed. Attorney Glorimil Walker
appeared on behalf of Defendant Olivia Parler, and Attorneys Bruce Brashear and Peter Focks
appeared on behalf of Jonphe Guilamo, the movant for writ of possession (as assignee of the
subject property from Plaintiff following judicial sale). By separate Order, the Court has granted the
Defendant’s motion to stay writ of possession.

Defendant’s present motion for relief from final judgment is essentially the renewal of a
motion made by Defendant much earlier in this litigation that has never been ruled upon. The
complaint in this mortgage foreclosure action was filed on December 28, 2007. The Defendants,
Olivia Hannible and James Hannible, did not answer the complaint after it was served upon them,
and a default was entered as to both of them on March 27, 2008. Thereafter, the Plaintiff moved for
summary final judgment. Despite having included in its complaint a count for re-establishment of a
lost note, Plaintiff filed what it purported to be the original adjustable rate note and original mortgage.
Plaintiff is not the original payee and mortgagee, but claimed to be the owner and holder thereof.

Plaintiff’s motion for summary judgment was set for hearing, canceled and rescheduled several
times. Eventually the case was referred to a general magistrate. At a conference with the general
magistrate, the Plaintiff appeared1 and a date was set for a non-jury trial before the general
magistrate. It appears that the notice setting this non-jury trial which was sent to Defendant Olivia
Parler was returned due to an insufficient address. Thereafter, Plaintiff set and served notice of a
hearing on its motion for summary judgment, setting it for the same date and time as the non-jury
trial, but indicating that its motion would be heard by a circuit judge, not the general magistrate. This
notice was sent to Defendant at an address which appears to be the same address at which
Defendant was originally served with process. Then, approximately ten days before the scheduled
hearing and non-jury trial, Plaintiff’s counsel served a notice of cancellation of the hearing which it
had scheduled before the judge. The non-jury trial before the magistrate, however, was held, and
the transcript indicates that the Defendant, who did not receive proper notice, did not appear.
Thereafter the magistrate filed a report and recommendation and a final judgment of foreclosure,
which included items of unliquidated damages, was entered by the Court. Approximately three
weeks after service of the final judgment of foreclosure, the Defendant filed a “Motion to Cancel
Sale”,2 pro se. In this motion, the Defendant claimed that she was not afforded the opportunity to be
present at the non-jury trial because she had received a notice from Plaintiff’s counsel that the only
hearing she knew about had been canceled. Shortly thereafter, Plaintiff also filed a motion to cancel
the sale because it needed additional time to assure compliance with a consent order entered in a
matter involving the U.S. Department of Justice and the Florida Attorney General’s office. Although
both parties were at that time requesting the cancellation of the foreclosure sale, the Plaintiff’s
motion was denied. There is no indication, however, of any ruling with respect to the Defendant’s
motion to cancel sale (or for relief from judgment entered without notice).
Perceiving that the Court’s denial of the Plaintiff’s motion to cancel sale was an indication that the sale would not be canceled,
the pro se Defendant then filed an appeal on the day before the scheduled sale. It was described
as an appeal of the denial of the motion to cancel sale. Nonetheless, the sale took place on the
following day, and the schedule of bids indicates that Plaintiff was the successful bidder. This first
appeal by the pro se Defendant was eventually dismissed because the Defendant could not comply
with the requirement that she file a conformed copy of the order being appealed. There never
having been an order entered on her motion to cancel sale, this would have been impossible to do.
Regardless, Defendant tried in various inartful ways to request that the sale and the certificate of
sale be “revoked”, repeating her claim that she had never had an opportunity to be present at the
non-jury trial which resulted in entry of the final judgment of foreclosure.

A second appeal was filed with respect to denial of another post-judgment motion by
Defendant. This appeal was initially dismissed and then reinstated. As part of that pending appeal,
an order requiring Defendant to post a $5,000 bond to avoid a writ of possession was reviewed and
approved. Both parties agree that the matters under present consideration by this court would not
interfere with the issues pending in the appellate court, although that appeal would certainly be
impacted and rendered moot if the final judgment (which is not on appeal) was vacated.
Although defaulted, and precluded from contesting liability, the Defendant is still entitled to
be heard on the issue of unliquidated damages. Donohue v. Brightman, 939 So. 2d 1162 (Fla. 4th
DCA 2006). No motion has ever been made which seeks to challenge or set aside the entry of
default against the Defendant, and the time to do so based on excusable neglect has expired.

Accordingly, it is hereby ORDERED AND ADJUDGED:

1. The final judgment of foreclosure is vacated and set aside. The judicial sale
is likewise set aside.

2. This matter will be set for a case management conference for the purpose of
establishing a new non-jury trial date on the issue of damages and any other
issues not otherwise precluded by entry of default.

3. Until further order of the Court, all remaining issues herein will be set before
and resolved by the undersigned judge unless and until reassigned.

DONE AND ORDERED in Chambers, at Gainesville, Alachua County, Florida on this 21
day of March 2014.
__________________________________
TOBY S. MONACO, CIRCUIT JUDGE

I HEREBY CERTIFY that copies have been furnished by e-mail delivery and/or U.S. Mail on
March 21, 2014, to the following:

Peter C. Focks, Esq.
pfocks@nflalaw.com

Michael Bruning, Esq
mbruning@acdlaw.com

Tricia J. Druthiers, Esq.
tjd@lgplaw.com

J. Raldolph Liebler, Esq.
service@lgplaw.com

Smith, Hiatt & Diaz, P.A.
answers@shdlegalgroup.com

Glorimil R. Walker, Esq.
Three Rivers Legal Services
Gloria.walker@trls.org

_____________________________________
Mary A. Jarvis, Judicial Assistant

Filed 8/19/13 (ordered published by Supreme Ct. 3/19/14)

SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA
APPELLATE DIVISION

THE BANK OF NEW YORK MELLON,
Plaintiff and Respondent,

v.

VIDAL A. PRECIADO et al.,
Defendants and Appellants.

THE BANK OF NEW YORK MELLON,
Plaintiff and Respondent,

v.

ROLAND LUKE et al.,
Defendants and Appellants.

EXCERPTS:

THE COURT*
The appeal by appellants Vidal Preciado (“Preciado”), Roland Luke (“Luke”), and Kenneth Henderson (“Henderson”) (collectively, “Appellants”) from the unlawful detainer judgments entered on March 16, 2012, came on regularly for hearing and was heard and submitted on August 16, 2013. We hereby hold as follows:

[…]

Conclusion
The judgments entered on March 16, 2012, are REVERSED and the trial court is instructed to entered judgments in favor of Appellants. Appellants are the prevailing party and are entitled to costs on appeal. (See Cal. Rules of Court, rule 8.891(a)(2).)

Bank of New York v. Romero, 33,224 (N.M. 2014)
New Mexico Supreme Court

Date Filed: February 13th, 2014

Status: Precedential

Docket Number: 33,224

Fingerprint: 3c58b2ff03a9ac5d37f59ef968e78224f47b5eb0

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number:

Filing Date: February 13, 2014

Docket No. 33,224

BANK OF NEW YORK as Trustee for POPULAR
FINANCIAL SERVICES MORTGAGE/PASS
THROUGH CERTIFICATE SERIES #2006,

Plaintiff-Respondent,

v.

JOSEPH A. ROMERO and MARY ROMERO,
a/k/a MARY O. ROMERO, a/k/a MARIA ROMERO,

Defendants-Petitioners.

ORIGINAL APPEAL ON CERTIORARI
James A. Hall, District Judge

Joshua R. Simms, P.C.
Joshua R. Simms
Albuquerque, NM

Frederick M. Rowe
Daniel Yohalem
Katherine Elizabeth Murray
Santa Fe, NM

for Petitioners

Rose Little Brand & Associates, P.C.
Eraina Marie Edwards
Albuquerque, NM

Severson & Werson
Jan T. Chilton
San Francisco, CA

for Respondents

1
Gary K. King, Attorney General
Joel Cruz-Esparza, Assistant Attorney General
Karen J. Meyers, Assistant Attorney General
Santa Fe, NM

for Amicus Curiae New Mexico Attorney General

Nancy Ana Garner
Santa Fe, NM

for Amicus Curiae Civic Amici

Rodey, Dickason, Sloan, Akin & Robb, P.A.
Edward R. Ricco
John P. Burton
Albuquerque, NM

James J. White
Ann Arbor, MI

for Amicus Curiae New Mexico Bankers Association

OPINION

DANIELS, Justice.

{1} We granted certiorari to review recurring procedural and substantive issues in home
mortgage foreclosure actions. We hold that the Bank of New York did not establish its
lawful standing in this case to file a home mortgage foreclosure action. We also hold that a
borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances”
that lenders and courts must consider in determining compliance with the New Mexico
Home Loan Protection Act, NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through
2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a
reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not
preempted by federal law. We reverse the Court of Appeals and district court and remand
to the district court with instructions to vacate its foreclosure judgment and to dismiss the
Bank of New York’s foreclosure action for lack of standing.

I. FACTUAL AND PROCEDURAL BACKGROUND

{2} On June 26, 2006, Joseph and Mary Romero signed a promissory note with Equity
One, Inc. to borrow $227,240 to refinance their Chimayo home. As security for the loan, the
Romeros signed a mortgage contract with the Mortgage Electronic Registration Systems

2
(MERS), as the nominee for Equity One, pledging their home as collateral for the loan.

{3} The Romeros allege that Equity One cold-called them and urged them to refinance
their home for access to their home’s equity. The terms of the Equity One loan were not an
improvement over their current home loan: Equity One’s interest rate was higher (starting
at 8.1 percent and increasing to 14 percent compared to 7.71 percent), the Romeros’ monthly
payments were greater ($1,683.28 compared to $1,256.39), and the loan amount due was
greater ($227,240 compared to $176,450). However, the Romeros would receive a cash
payout of nearly $43,000, which would cover about $12,000 in new closing costs and
provide them with about $30,000 to pay off other debts.

{4} Both parties agree that the Romeros’ loan was a no income, no assets loan (NINA)
and that documentation of their income was never requested or verified. The Romeros owned
a music store in Espanola, New Mexico, and Mr. Romero allegedly told Equity One that the
store provided him an income of $5,600 a month. Also known as liar loans because they are
based solely on the professed income of the self-employed, NINA loans have since been
specifically prohibited in New Mexico by a 2009 amendment to the HLPA and also by
federal law. See NMSA 1978, § 58-21A-4(C)-(D) (requiring a creditor to document a
borrower’s ability to repay); 15 U.S.C.A. § 1639c(a)(1) (2010) (requiring creditors to make
a reasonable and good-faith effort to determine a borrower’s ability to repay); see also Pub.
L. No. 111-203, § 1411(a)(1), 124 Stat. 2142 (2010) (same). The Romeros stated that they
did not read the note or the mortgage contracts thoroughly before signing them, allegedly
because of limited time for review, the complexity of the documents, and their own limited
education. They admit having signed a document prepared by Equity One reciting that the
home loan provided them a “reasonable tangible net benefit” based on the $30,000 cash
payout.

{5} The Romeros soon became delinquent on their increased loan payments. On April
1, 2008, a third party—the Bank of New York, identifying itself as a trustee for Popular
Financial Services Mortgage—filed a complaint in the First Judicial District Court seeking
foreclosure on the Romeros’ home and claiming to be the holder of the Romeros’ note and
mortgage with the right of enforcement.

{6} The Romeros responded by arguing, among other things, that the Bank of New York
lacked standing to foreclose because nothing in the complaint established how the Bank of
New York was a holder of the note and mortgage contracts the Romeros signed with Equity
One. According to the Romeros, Securities and Exchange Commission filings showed that
their loan certificate series was once owned by Popular ABS Mortgage and not Popular
Financial Services Mortgage and that the holder was JPMorgan Chase. The Romeros also
raised several counterclaims, only one of which is relevant to this appeal: that the loan
violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).

{7} The Bank responded by providing (1) a document showing that MERS as a nominee
for Equity One assigned the Romeros’ mortgage to the Bank of New York on June 25, 2008,

3
three months after the Bank filed the foreclosure complaint and (2) the affidavit of Ann
Kelley, senior vice president for Litton Loan Servicing LP, stating that Equity One intended
to transfer the note and assign the mortgage to the Bank of New York prior to the Bank’s
filing of the foreclosure complaint. However, the Bank of New York admits that Kelley’s
employer Litton Loan Servicing did not begin servicing the Romeros’ loan until November
1, 2008, seven months after the foreclosure complaint was filed in district court.

{8} At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan
Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies
of the note and mortgage admitted as trial evidence by the Bank of New York were copies
of the originals and also testified that the Bank of New York had physical possession of both
the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan’s testimony, arguing that he lacked personal
knowledge to make these claims given that Litton Loan Servicing was not a servicer for the
Bank of New York until after the foreclosure complaint was filed and the MERS assignment
occurred. The district court allowed the testimony based on the business records exception
because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the “original” note Flannigan
purportedly authenticated was different from the “original” note attached to the Bank of New
York’s foreclosure complaint. While the note attached to the complaint as a true copy was
not indorsed, the “original” admitted at trial was indorsed twice: first, with a blank
indorsement by Equity One and second, with a special indorsement made payable to
JPMorgan Chase. When asked whether either of those two indorsements included the Bank
of New York, Flannigan conceded that neither did, but he claimed that his review of the
records indicated the note had been transferred to the Bank of New York based on a pooling
and servicing agreement document that was never entered into evidence.

{11} The district court also heard testimony on the circumstances of the loan, the points
and fees charged, and the calculus used to determine a reasonable, tangible net benefit.
Following trial, the district court issued a written order finding that the Flannigan testimony
and the assignment of the mortgage established the Bank of New York as the proper holder
of the Romeros’ note and concluding that the loan did not violate the HLPA because the cash
payment to the Romeros provided a reasonable, tangible net benefit. The district court also
determined that because the Bank of New York was a national bank, federal law preempted
the protections of the HLPA.

{12} On appeal, the Court of Appeals affirmed the district court’s rulings that the Bank
of New York had standing to foreclose and that the HLPA had not been violated but
determined as a result of the latter ruling that it was not necessary to address whether federal
law preempted the HLPA. See Bank of N.Y. v. Romero, 2011-NMCA-110, ¶ 6,

150 N.M. 769

,

266 P.3d 638

(“Because we conclude that substantial evidence exists for each of the
district court’s findings and conclusions, and we affirm on those grounds, we do not address

4
the Romeros’ preemption argument.”).

{13} We granted the Romeros’ petition for writ of certiorari.

II. DISCUSSION

A. The Bank of New York Lacks Standing to Foreclose

1. Preservation

{14} As a preliminary matter, we address the Bank of New York’s argument that the
Romeros waived their challenge of the Bank’s standing in this Court and the Court of
Appeals by failing to provide the evidentiary support required by Rule 12-213(A)(3) NMRA.
See Bank of N.Y., 2011-NMCA-110, ¶¶ 20-21 (dismissing the Romeros’ challenge to
standing as without authority and based primarily on the note’s bearer-stamp assignment to
JPMorgan Chase); see also Rule 12-213(A)(3) (“A contention that a verdict, judgment or
finding of fact is not supported by substantial evidence shall be deemed waived unless the
summary of proceedings includes the substance of the evidence bearing upon the
proposition.”).

{15} We have recognized that “the lack of [standing] is a potential jurisdictional defect
which ‘may not be waived and may be raised at any stage of the proceedings, even sua
sponte by the appellate court.’” Gunaji v. Macias, 2001-NMSC-028, ¶ 20,

130 N.M. 734

,

31 P.3d 1008

(citation omitted). While we disagree that the Romeros waived their standing
claim, because their challenge has been and remains largely based on the note’s indorsement
to JPMorgan Chase, whether the Romeros failed to fully develop their standing argument
before the Court of Appeals is immaterial. This Court may reach the issue of standing based
on prudential concerns. See New Energy Economy, Inc. v. Shoobridge, 2010-NMSC-049, ¶
16,

149 N.M. 42

,

243 P.3d 746

(“Indeed, ‘prudential rules’ of judicial self-governance, like
standing, ripeness, and mootness, are ‘founded in concern about the proper—and properly
limited—role of courts in a democratic society’ and are always relevant concerns.” (citation
omitted)). Accordingly, we address the merits of the standing challenge.

2. Standards of Review

{16} The Bank argues that under a substantial evidence standard of review, it presented
sufficient evidence to the district court that it had the right to enforce the Romeros’
promissory note based primarily on its possession of the note, the June 25, 2008, assignment
letter by MERS, and the trial testimony of Kevin Flannigan. By contrast, the Romeros argue
that none of the Bank’s evidence demonstrates standing because (1) possession alone is
insufficient, (2) the “original” note introduced by the Bank of New York at trial with the two
undated indorsements includes a special indorsement to JPMorgan Chase, which cannot be
ignored in favor of the blank indorsement, (3) the June 25, 2008, assignment letter from
MERS occurred after the Bank of New York filed its complaint, and as a mere assignment

5
of the mortgage does not act as a lawful transfer of the note, and (4) the statements by Ann
Kelley and Kevin Flannigan are inadmissible because both lack personal knowledge given
that Litton Loan Servicing did not begin servicing loans for the Bank of New York until
seven months after the foreclosure complaint was filed and after the purported transfer of the
loan occurred. For the following reasons, we agree with the Romeros.

{17} The Bank of New York does not dispute that it 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. See NMSA 1978, § 55-3-301 (1992) (defining who is entitled
to enforce a negotiable interest such as a note); see also NMSA 1978, § 55-3-104(a), (b), (e)
(1992) (identifying a promissory note as a negotiable instrument); ACLU of N.M. v. City of
Albuquerque, 2008-NMSC-045, ¶ 9 n.1,

144 N.M. 471

,

188 P.3d 1222

(recognizing standing
as a jurisdictional prerequisite for a statutory cause of action); Lujan v. Defenders of Wildlife,

504 U.S. 555

, 570-71 n.5 (1992) (“[S]tanding is to be determined as of the commencement
of suit.”); accord 55 Am. Jur. 2d Mortgages § 584 (2009) (“A plaintiff has no foundation in
law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable
interest.”). One reason for such a requirement is simple: “One who is not a party to a contract
cannot maintain a suit upon it. If [the entity] was a successor in interest to a party on the
[contract], it was incumbent upon it to prove this to the court.” L.R. Prop. Mgmt., Inc. v.
Grebe, 1981-NMSC-035, ¶ 7,

96 N.M. 22

,

627 P.2d 864

(citation omitted). The Bank of
New York had the burden of establishing timely ownership of the note and the mortgage to
support its entitlement to pursue a foreclosure action. See Gonzales v. Tama, 1988-NMSC-
016, ¶ 7,

106 N.M. 737

,

749 P.2d 1116

(“One who holds a note secured by a mortgage has
two separate and independent remedies, which he may pursue successively or concurrently;
one is on the note against the person and property of the debtor, and the other is by
foreclosure to enforce the mortgage lien upon his real estate.” (internal quotation marks and
citation omitted)).

{18} Because the district court determined after a trial on the issue that the Bank of New
York established standing as a factual matter, we review the district court’s determination
under a substantial evidence standard of review. See Sims v. Sims, 1996-NMSC-078, ¶ 65,

122 N.M. 618

,

930 P.2d 153

(“We have many times stated the standard of review of a trial
court’s findings of fact: Findings of fact made by the district court will not be disturbed if
they are supported by substantial evidence.”). “‘Substantial evidence’ means relevant
evidence that a reasonable mind could accept as adequate to support a conclusion.” Id. “This
Court will resolve all disputed facts and indulge all reasonable inferences in favor of the trial
court’s findings.” Id. However, “[w]hen the resolution of the issue depends upon the
interpretation of documentary evidence, this Court is in as good a position as the trial court
to interpret the evidence.” Kirkpatrick v. Introspect Healthcare Corp., 1992-NMSC-070, ¶
14,

114 N.M. 706

, 845 P.2d 800; see also United Nuclear Corp. v. Gen. Atomic Co., 1979-
NMSC-036, ¶ 62,

93 N.M. 105

,

597 P.2d 290

(“‘Where all or substantially all of the
evidence on a material issue is documentary or by deposition, the Supreme Court will
examine and weigh it, and will review the record, giving some weight to the findings of the
trial judge on such issue.’” (citation omitted)).

6
3. None of the Bank’s Evidence Demonstrates Standing to Foreclose

{19} The Bank of New York argues that in order to demonstrate standing, it was required
to prove that before it filed suit, it either (1) had physical possession of the Romeros’ note
indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as
required by the UCC. See § 55-3-301 (defining “[p]erson entitled to enforce” a negotiable
instrument). While we agree with the Bank that our state’s UCC governs how a party
becomes legally entitled to enforce a negotiable instrument such as the note for a home loan,
we disagree that the Bank put forth such evidence.

a. Possession of a Note Specially Indorsed to JPMorgan Chase Does Not Establish
the Bank of New York as a Holder

{20} Section 55-3-301 of the UCC provides three ways in which a third party can enforce
a negotiable instrument such as a note. Id. (“‘Person entitled to enforce’ an instrument means
(i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the
rights of a holder, or (iii) a person not in possession of the instrument who is entitled to
enforce the [lost, destroyed, stolen, or mistakenly transferred] instrument pursuant to [certain
UCC enforcement provisions].”); see also § 55-3-104(a)(1), (b), (e) (defining “negotiable
instrument” as including a “note” made “payable to bearer or to order”). Because the Bank’s
arguments rest on the fact that it was in physical possession of the Romeros’ note, we need
to consider only the first two categories of eligibility to enforce under Section 55-3-301.

{21} The UCC defines the first type of “person entitled to enforce” a note—the “holder”
of the instrument—as “the person in possession of a negotiable instrument that is payable
either to bearer or to an identified person that is the person in possession.” NMSA 1978, §
55-1-201(b)(21)(A) (2005); see also Frederick M. Hart & William F. Willier, Negotiable
Instruments Under the Uniform Commercial Code, § 12.02(1) at 12-13 to 12-15 (2012)
(“The first requirement of being a holder is possession of the instrument. However,
possession is not necessarily sufficient to make one a holder. . . . The payee is always a
holder if the payee has possession. Whether other persons qualify as a holder depends upon
whether the instrument initially is payable to order or payable to bearer, and whether the
instrument has been indorsed.” (footnotes omitted)). Accordingly, a third party must prove
both physical possession and the right to enforcement through either a proper indorsement
or a transfer by negotiation. See NMSA 1978, § 55-3-201(a) (1992) (“‘Negotiation’ means
a transfer of possession . . . of an instrument by a person other than the issuer to a person
who thereby becomes its holder.”). Because in this case the Romeros’ note was clearly made
payable to the order of Equity One, we must determine whether the Bank provided sufficient
evidence of how it became a “holder” by either an indorsement or transfer.

{22} Without explanation, the note introduced at trial differed significantly from the
original note attached to the foreclosure complaint, despite testimony at trial that the Bank
of New York had physical possession of the Romeros’ note from the time the foreclosure
complaint was filed on April 1, 2008. Neither the unindorsed note nor the twice-indorsed

7
note establishes the Bank as a holder.

{23} 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. See NMSA 1978, § 55-3-109 cmt. 1 (1992) (“An instrument that
is payable to an identified person cannot be negotiated without the indorsement of the
identified person.”). The Bank’s possession of the Romeros’ unindorsed note made payable
to Equity One does not establish the Bank’s entitlement to enforcement.

{24} The Bank’s possession of a note with two indorsements, one of which restricts
payment to JPMorgan Chase, also does not establish the Bank’s entitlement to enforcement.
The UCC recognizes two types of indorsements for the purposes of negotiating an
instrument. A blank indorsement, as its name suggests, does not identify a person to whom
the instrument is payable but instead makes it payable to anyone who holds it as bearer
paper. See NMSA 1978, § 55-3-205(b) (1992) (“If an indorsement is made by the holder of
an instrument and it is not a special indorsement, it is a ‘blank indorsement.’”). “When
indorsed in blank, an instrument becomes payable to bearer and may be negotiated by
transfer of possession alone until specially indorsed.” Id.

{25} By contrast, a special indorsement “identifies a person to whom it makes the
instrument payable.” Section 55-3-205(a). “When specially indorsed, an instrument becomes
payable to the identified person and may be negotiated only by the indorsement of that
person.” Id.; accord Baxter Dunaway, Law of Distressed Real Estate, § 24:105 (2011)
(“When an instrument is payable to an identified person, only that person may be the holder.
A person in possession of an instrument not made payable to his order can only become a
holder by obtaining the prior holder’s indorsement.”).

{26} The trial copy of the Romeros’ note contained two undated indorsements: a blank
indorsement by Equity One and a special indorsement by Equity One to JPMorgan Chase.
Although we agree with the Bank that if the Romeros’ note contained only a blank
indorsement from Equity One, that blank indorsement would have established the Bank as
a holder because the Bank would have been in possession of bearer paper, that is not the
situation before us. The Bank’s copy of the Romeros’ note contained two indorsements, and
the restrictive, special indorsement to JPMorgan Chase establishes JPMorgan Chase as the
proper holder of the Romeros’ note absent some evidence by JPMorgan Chase to the
contrary. See Cadle Co. v. Wallach Concrete, Inc., 1995-NMSC-039, ¶ 14,

120 N.M. 56

,

897 P.2d 1104

(“[A] special indorser . . . has the right to direct the payment and to require the
indorsement of his indorsee as evidence of the satisfaction of own obligation. Without such
an indorsement, a transferee cannot qualify as a holder in due course.” (omission in original)
(internal quotation marks and citation omitted)). Because JPMorgan Chase did not
subsequently indorse the note, either in blank or to the Bank of New York, the Bank of New
York cannot establish itself as the holder of the Romeros’ note simply by possession.

{27} Rather than demonstrate timely ownership of the note and mortgage through

8
JPMorgan Chase, the Bank of New York urges this Court to infer that the special
indorsement was a mistake and that we should rely only on the blank indorsement. We are
not persuaded. The Bank provides no authority and we know of none that exists to support
its argument that the payment restrictions created by a special indorsement can be ignored
contrary to our long-held rules on indorsements and the rights they create. See, e.g., id.
(rejecting each of two entities as a holder because a note lacked the requisite indorsement
following a special indorsement); accord NMSA 1978, § 55-3-204(c) (1992) (“For the
purpose of determining whether the transferee of an instrument is a holder, an indorsement
that transfers a security interest in the instrument is effective as an unqualified indorsement
of the instrument.”).

{28} Accordingly, we conclude that the Bank of New York’s possession of the twice-
indorsed note restricting payment to JPMorgan Chase does not establish the Bank of New
York as a holder with the right of enforcement.

b. None of the Bank of New York’s Evidence Demonstrates a Transfer of the
Romeros’ Note

{29} The second type of “person entitled to enforce” a note under the UCC is a third party
in possession who demonstrates that it was given the rights of a holder. See § 55-3-301
(“‘Person entitled to enforce’ an instrument means . . . a nonholder in possession of the
instrument who has the rights of a holder.”). This provision requires a nonholder to prove
both possession and the transfer of such rights. See NMSA 1978, § 55-3-203(a)-(b) (1992)
(defining what constitutes a transfer and vesting in a transferee only those rights held by the
transferor). A claimed transferee must establish its right to enforce the note. See § 55-3-203
cmt. 2 (“[An] instrument [unindorsed upon transfer], by its terms, is not payable to the
transferee and the transferee must account for possession of the unindorsed instrument by
proving the transaction through which the transferee acquired it.”).

{30} Under this second category, the Bank of New York relies on the testimony of Kevin
Flannigan, an employee of Litton Loan Servicing who maintained that his review of loan
servicing records indicated that the Bank of New York was the transferee of the note. The
Romeros objected to Flannigan’s testimony at trial, an objection that the district court
overruled under the business records exception. We agree with the Romeros that Flannigan’s
testimony was inadmissible and does not establish a proper transfer.

{31} As the Bank of New York admits, Flannigan’s employer, Litton Loan Servicing, did
not begin working for the Bank of New York as its servicing agent until November 1,
2008—seven months after the April 1, 2008, foreclosure complaint was filed. Prior to this
date, Popular Mortgage Servicing, Inc. serviced the Bank of New York’s loans. Flannigan
had no personal knowledge to support his testimony that transfer of the Romeros’ note to the
Bank of New York prior to the filing of the foreclosure complaint was proper because
Flannigan did not yet work for the Bank of New York. See Rule 11-602 NMRA (“A witness
may testify to a matter only if evidence is introduced sufficient to support a finding that the

9
witness has personal knowledge of the matter. Evidence to prove personal knowledge may
consist of the witness’s own testimony.”). We make a similar conclusion about the affidavit
of Ann Kelley, who also testified about the status of the Romeros’ loan based on her work
for Litton Loan Servicing. As with Flannigan’s testimony, such statements by Kelley were
inadmissible because they lacked personal knowledge.

{32} When pressed about Flannigan’s basis of knowledge on cross-examination,
Flannigan merely stated that “our records do indicate” the Bank of New York as the holder
of the note based on “a pooling and servicing agreement.” No such business record itself was
offered or admitted as a business records hearsay exception. See Rule 11-803(F) NMRA
(2007) (naming this category of hearsay exceptions as “records of regularly conducted
activity”).

{33} The district court erred in admitting the testimony of Flannigan as a custodian of
records under the exception to the inadmissibility of hearsay for “business records” that are
made in the regular course of business and are generally admissible at trial under certain
conditions. See Rule 11-803(F) (2007) (citing the version of the rule in effect at the time of
trial). The business records exception allows the records themselves to be admissible but not
simply statements about the purported contents of the records. See State v. Cofer,
2011-NMCA-085, ¶ 17,

150 N.M. 483

,

261 P.3d 1115

(holding that, based on the plain
language of Rule 11-803(F) (2007), “it is clear that the business records exception requires
some form of document that satisfies the rule’s foundational elements to be offered and
admitted into evidence and that testimony alone does not qualify under this exception to the
hearsay rule” and concluding that “‘testimony regarding the contents of business records,
unsupported by the records themselves, by one without personal knowledge of the facts
constitutes inadmissible hearsay.’” (citation omitted)). Neither Flannigan’s testimony nor
Kelley’s affidavit can substantiate the existence of documents evidencing a transfer if those
documents are not entered into evidence. Accordingly, Flannigan’s trial testimony cannot
establish that the Romeros’ note was transferred to the Bank of New York.

{34} We also reject the Bank’s argument that it can enforce the Romeros’ note because
it was assigned the mortgage by MERS. An assignment of a mortgage vests only those rights
to the mortgage that were vested in the assigning entity and nothing more. See § 55-3-203(b)
(“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the
transferee any right of the transferor to enforce the instrument, including any right as a
holder in due course.”); accord Hart & Willier, supra, § 12.03(2) at 12-27 (“Th[is] shelter
rule puts the transferee in the shoes of the transferor.”).

{35} Here, as Equity One and MERS explained to the district court in a joint filing seeking
to be dismissed as third parties to the Romeros’ counterclaims, “MERS . . . is merely the
nominee for Equity One, Inc. in the underlying Mortgage and was not the actual lender.
MERS is a national electronic registry which keeps track of the changes in servicing and
ownership of mortgage loans.” See also Christopher L. Peterson, Foreclosure, Subprime
Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L. Rev.

10
1359, 1361-63 (2010) (explaining that MERS was created by the banking industry to
electronically track and record mortgages in order to avoid local and state recording fees).
The Romeros’ mortgage contract reiterates the MERS role, describing “MERS [a]s a
separate corporation that is acting solely as a nominee for Lender and Lender’s successors
and assigns.” A “nominee” is defined as “[a] person designated to act in place of another,
usu. in a very limited way.” Black’s Law Dictionary 1149 (9th ed. 2009). As a nominee for
Equity One on the mortgage contract, MERS could assign the mortgage but lacked any
authority to assign the Romeros’ note. Although this Court has never explicitly ruled on the
issue of whether the assignment of a mortgage could carry with it the transfer of a note, we
have long recognized the separate functions that note and mortgage contracts perform in
foreclosure actions. See First Nat’l Bank of Belen v. Luce, 1974-NMSC-098, ¶ 8,

87 N.M. 94

,

529 P.2d 760

(holding that because the assignment of a mortgage to a bank did not
convey an interest in the loan contract, the bank was not entitled to foreclose on the
mortgage); Simson v. Bilderbeck, Inc., 1966-NMSC-170, ¶¶ 13-14,

76 N.M. 667

,

417 P.2d 803

(explaining that “[t]he right of the assignee to enforce the mortgage is dependent upon
his right to enforce the note” and noting that “[b]oth the note and mortgage were assigned
to plaintiff. Having a right under the statute to enforce the note, he could foreclose the
mortgage.”); accord 55 Am. Jur. 2d Mortgages § 584 (“A mortgage securing the repayment
of a promissory note follows the note, and thus, only the rightful owner of the note has the
right to enforce the mortgage.”); Dunaway, supra, § 24:18 (“The mortgage only secures the
payment of the debt, has no life independent of the debt, and cannot be separately
transferred. If the intent of the lender is to transfer only the security interest (the mortgage),
this cannot legally be done and the transfer of the mortgage without the debt would be a
nullity.”). These separate contractual functions—where the note is the loan and the mortgage
is a pledged security for that loan—cannot be ignored simply by the advent of modern
technology and the MERS electronic mortgage registry system.

{36} The MERS assignment fails for several additional reasons. First, it does not explain
the conflicting special indorsement of the note to JPMorgan Chase. Second, its assignment
of the mortgage to the Bank of New York on June 25, 2008, three months after the
foreclosure complaint was filed, does not establish a proper transfer prior to the filing date
of the foreclosure suit. Third, except for the inadmissible affidavit of Ann Kelley and trial
testimony of Kevin Flannigan, nothing in the record substantiates the Bank’s claim that the
MERS assignment was meant to memorialize an earlier transfer to the Bank of New York.
Accordingly, neither the MERS assignment nor Flannigan’s testimony establish the Bank
of New York as a nonholder in possession with the rights of a holder by transfer.

c. Failure of Another Entity to Claim Ownership of the Romeros’ Note Does Not
Make the Bank of New York a Holder

{37} Finally, the Bank of New York urges this Court to adopt the district court’s inference
that if the Bank was not the proper holder of the Romeros’ note, then third-party-defendant
Equity One would have claimed to be the rightful holder, and Equity One made no such
claim.

11
{38} The simple fact that Equity One does not claim ownership of the Romeros’ note does
not establish that the note was properly transferred to the Bank of New York. In fact, the
evidence in the record indicates that JPMorgan Chase may be the lawful holder of the
Romeros’ note, as reflected in the note’s special indorsement. As this Court has recognized,

The whole purpose of the concept of a negotiable instrument under
Article 3 [of the UCC] is to declare that transferees in the ordinary course of
business are only to be held liable for information appearing in the
instrument itself and will not be expected to know of any limitations on
negotiability or changes in terms, etc., contained in any separate documents.

First State Bank at Gallup v. Clark, 1977-NMSC-088, ¶ 10,

91 N.M. 117

, 570 P.2d 1144.
In addition, the UCC clarifies that the Bank of New York is not afforded any assumption of
enforcement without proper documentation:

Because the transferee is not a holder, there is no presumption under Section
[55-]3-308 [(1992) (entitling a holder in due course to payment by production
and upon signature)] that the transferee, by producing the instrument, is
entitled to payment. The instrument, by its terms, is not payable to the
transferee and the transferee must account for possession of the unindorsed
instrument by proving the transaction through which the transferee acquired
it.

Section 55-3-203 cmt. 2. Because the Bank of New York did not introduce any evidence
demonstrating that it was a party with the right to enforce the Romeros’ note either by an
indorsement or proper transfer, we hold that the Bank’s standing to foreclose on the
Romeros’ mortgage was not supported by substantial evidence, and we reverse the contrary
determinations of the courts below.

B. A Lender Must Consider a Borrower’s Ability to Repay a Home Mortgage Loan
in Determining Whether the Loan Provides a Reasonable, Tangible Net Benefit,
as Required by the New Mexico HLPA

{39} For reasons that are not clear in the record, the Romeros did not appeal the district
court’s judgment in favor of the original lender, Equity One, on the Romeros’ claims that
Equity One violated the HLPA. The Court of Appeals addressed the HLPA violation issue
in the context of the Romeros’ contentions that the alleged violation constituted a defense
to the foreclosure complaint of the Bank of New York by affirming the district court’s
favorable ruling on the Bank of New York’s complaint. As a result of our holding that the
Bank of New York has not established standing to bring a foreclosure action, the issue of
HLPA violation is now moot in this case. But because it is an issue that is likely to be
addressed again in future attempts by whichever institution may be able to establish standing
to foreclose on the Romero home and because it involves a statutory interpretation issue of
substantial public importance in many other cases, we address the conclusion of both the

12
Court of Appeals and the district court that a homeowner’s inability to repay is not among
“all of the circumstances” that the 2003 HLPA, applicable to the Romeros’ loan, requires a
lender to consider under its “flipping” provisions:

No creditor shall knowingly and intentionally engage in the unfair act
or practice of flipping a home loan. As used in this subsection, “flipping a
home loan” means the making of a home loan to a borrower that refinances
an existing home loan when the new loan does not have reasonable, tangible
net benefit to the borrower considering all of the circumstances, including the
terms of both the new and refinanced loans, the cost of the new loan and the
borrower’s circumstances.

Section 58-21A-4(B) (2003); see also Bank of N.Y., 2011-NMCA-110, ¶ 17 (holding that
“while the ability to repay a loan is an important consideration when otherwise assessing a
borrower’s financial situation, we will not read such meaning into the statute’s ‘reasonable,
tangible net benefit’ language”).

{40} “Statutory interpretation is a question of law, which we review de novo.” Hovet v.
Allstate Ins. Co., 2004-NMSC-010, ¶ 10,

135 N.M. 397

, 89 P.3d 69. “[W]hen presented with
a question of statutory construction, we begin our analysis by examining the language
utilized by the Legislature, as the text of the statute is the primary indicator of legislative
intent.” Bishop v. Evangelical Good Samaritan Soc., 2009-NMSC-036, ¶ 11,

146 N.M. 473

,
212 P.3d 361. Under the rules of statutory construction, “[w]hen a statute contains language
which is clear and unambiguous, we must give effect to that language and refrain from
further statutory interpretation.” State ex rel. Helman v. Gallegos, 1994-NMSC-023, ¶ 18,

117 N.M. 346

,

871 P.2d 1352

(internal quotation marks and citation omitted).

{41} The New Mexico Legislature passed the HLPA in 2003 to combat abusive home
mortgage procurement practices, with special concerns about non-income-based loans. See
§ 58-21A-2(A)-(B) (finding that “abusive mortgage lending has become an increasing
problem in New Mexico, exacerbating the loss of equity in homes and causing the number
of foreclosures to increase in recent years” and that “one of the most common forms of
abusive lending is the making of loans that are equity-based, rather than income-based”).
“The [HLPA] shall be liberally construed to carry out its purpose.” Section 58-21A-14.

{42} In 2004, regulations were adopted to clarify that “[t]he reasonable, tangible net
benefit standard in Section 58-21A-4 B NMSA 1978, is inherently dependent upon the
totality of facts and circumstances relating to a specific transaction,” 12.15.5.9(A) NMAC,
and that “each lender should develop and maintain policies and procedures for evaluating
loans in circumstances where an economic test, standing alone, may not be sufficient to
determine that the transaction provides the requisite benefit,” 12.15.5.9(B) NMAC. See also
12.15.5.9(C) NMAC (stating that evaluation of compliance with the HLPA’s loan-flipping
provision “will focus on whether a lender has policies and procedures in place . . . that were
used to determine that borrowers received a reasonable, tangible net benefit in connection

13
with the refinancing of loans”).

{43} The Court of Appeals expressed that it was significant that the Legislature did not
specifically recite the ability to repay as a factor to be considered in the undefined
“borrower’s circumstances” addressed in the antiflipping provisions of Section 58-21A-4(B)
(2003) while the Legislature did specifically recite that factor in a separate section of the
HLPA prohibiting equity stripping in high-cost loans. See Bank of N.Y., 2011-NMCA-110,
¶¶ 11, 17 (noting that the 2003 HLPA “sets forth limitations and prohibited practices for
‘high-cost’ mortgages”); see also § 58-21A-5(H) (2003) (“No creditor shall make a high-cost
home loan without due regard to repayment ability.”). The Court of Appeals inferred from
the specific additional wording in the 2003 statutory provisions for high-cost loans that
“when it enacted Section 58-21A-4(B)” in 2003 the Legislature “chose not to require
consideration and documentation of a borrower’s reasonable ability to repay the loan when
determining what tangible benefit, if any, the borrower would receive from a mortgage
loan.” Bank of N.Y., 2011-NMCA-110, ¶ 17. While comparisons between sections of a
statute can be helpful in determining legislative intent where the statutory language or the
legislative purpose is unclear, we cannot ignore the commands of either the broad plain
language of the HLPA antiflipping provisions, identical in both the 2003 statute and its 2009
amendment and requiring consideration of all circumstances including those of the borrower,
or the express legislative purpose declarations of what the HLPA was enacted to avoid,
including abusive mortgage loans not based on income that result in the loss of borrowers’
homes. We have been presented with no conceivable reason why the Legislature in 2003
would consciously exclude consideration of a borrower’s ability to repay the loan as a factor
of the borrower’s circumstances, and we can think of none. Without an express legislative
direction to that effect, we will not conclude that the Legislature meant to approve mortgage
loans that were doomed to end in failure and foreclosure. Apart from the plain language of
the statute and its express statutory purpose, it is difficult to comprehend how an
unrepayable home mortgage loan that will result in a foreclosure on one’s home and a
deficiency judgment to pay after the borrower is rendered homeless could provide “a
reasonable, tangible net benefit to the borrower.”

{44} In light of the remedial purposes of the HLPA, the broadly inclusive language of the
2003 antiflipping provisions requiring home refinancing to provide a “reasonable, tangible
net benefit to the borrower considering all of the circumstances,” and the reiteration in the
same sentence that “all of the circumstances” includes specific consideration of “the
borrower’s circumstances,” we hold that the ability of a homeowner to have a reasonable
chance of repaying a mortgage loan must be a factor in the “reasonable, tangible net benefit”
analysis required by the antiflipping provisions of the HLPA since the original 2003
enactment. While it is theoretically possible that other factors of a particular buyer’s
individual situation might support a finding of a reasonable, tangible benefit in the totality
of the circumstances despite the difficulty a buyer might have repaying the new loan, neither
court below considered the Romeros’ ability to repay the loan at all in reviewing the totality
of their circumstances, and it is inappropriate for us to make that factual determination on
appeal.

14
{45} Because the Romeros’ mortgage and others like it may come before our courts in the
future, we make some observations to provide guidance in assessing a borrower’s ability to
repay. The lender in this case claimed to rely solely on the Romeros’ unexplained assertion
on a form that they earned $5,600 a month, but the lender did not review tax returns or other
documents that easily would have clarified earning $5,600 as a one-time occurrence. The
Bank argues that the lender was not required to ask the borrowers for proof of their income
but rather that the Romeros were required to provide it, citing 12.15.5.9(G) NMAC
(“Borrowers are responsible for the disclosure of information provided on the application
for a home loan. Truthful disclosure of all relevant facts and financial information
concerning the borrower’s circumstances is required in order for lenders to evaluate and
determine that the refinance loan transaction provides a reasonable, tangible net benefit to
the borrower.”). But under the very next provision in the regulation, a lender cannot avoid
its own obligation to consider real facts and circumstances that might clarify the inaccuracy
of a borrower’s income claim. Id. (“Lenders cannot, however, disregard known facts and
circumstances that may place in question the accuracy of information contained in the
application.”) A lender’s willful blindness to its responsibility to consider the true
circumstances of its borrowers is unacceptable. A full and fair consideration of those
circumstances might well show that a new mortgage loan would put a borrower into a
materially worse situation with respect to the ability to make home loan payments and avoid
foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.

{46} We acknowledge that the Romeros signed their names to a document prepared by the
lender reciting the conclusion that the loan provided them with a reasonable, tangible net
benefit. But if the inclusion of such boilerplate language in the mass of documents a
borrower must sign at closing would substitute for a lender’s conscientious compliance with
the obligations imposed by the HLPA, its protections would be no more than empty words
on paper that could be summarily swept aside by the addition of yet one more document for
the borrower to sign at the closing.

{47} The lender’s own benefit analysis questionnaire in this case should have put the
lender on notice that the loan might not have provided a reasonable, tangible net benefit.

{48} Step one of the questionnaire required the lender to weigh the Romeros’ new loan
against their existing loan and respond to seven questions by comparing factors such as the
loans’ monthly payments and interest rates, determining the time between the original loan
and the refinancing, and indicating whether the borrower received cash. If the new loan
provided five of seven potential benefits as indicated by graded responses to the seven
questions, then the lender’s own formula would result in the finding of a reasonable, tangible
net benefit and no further evaluation would be necessary. Because the Equity One analysis
indicated only one of the seven benefits, net cash to the Romeros at the time of closing,
Equity One was not yet authorized by its own policies to make the loan and needed to
proceed with step two.

{49} Step two required the lender to (1) provide a written “verification or documentation”

15
that the loan was “appropriate for the borrower” and (2) indicate on a preprinted checklist
any of eight reasonable, tangible net benefits the borrower would be receiving. Although
Equity One responded to the second requirement by indicating that the loan refinanced some
of the Romeros’ debt, it left the first blank, offering no verification that the loan was
appropriate for the Romeros based on their ability to repay—a required element of Equity
One’s own benefit analysis. Equity One’s benefit analysis worksheet reviewed and approved
by an Equity One manager on June 26, 2006, speaks for itself, providing unbiased,
documentary evidence of Equity One’s own disregard of the Romeros’ financial
circumstances in violation of the HLPA, whether or not the Romeros signed Equity One’s
document reciting that they received a reasonable, tangible net benefit. See 12.15.5.9(H)
NMAC (“An appropriate analysis reflected in the loan documentation can be helpful in
determining that a lender satisfies the statutory requirement. As part of a lender’s analysis,
a lender may wish to obtain and document an explanation from the borrower regarding any
non-economic benefits the borrower associates with the loan transaction. It should be noted,
however, that because it is incumbent on the lender to conduct an analysis of whether the
borrower received a reasonable, tangible net benefit, a borrower certification, standing alone,
would not necessarily be determinative of whether a loan provided that benefit.”).

{50} Borrowers are certainly not blameless if they try to refinance their homes through
loans they cannot afford. But they do not have a mortgage lender’s expertise, and the
combination of the relative unsophistication of many borrowers and the potential motives
of unscrupulous lenders seeking profits from making loans without regard for the
consequences to homeowners led to the need for statutory reform. See § 58-21A-2
(discussing (A) “abusive mortgage lending” practices, including (B) “making . . . loans that
are equity-based, rather than income based,” (C) “repeatedly refinanc[ing] home loans,”
rewarding lenders with “immediate income” from “points and fees” and (D) victimizing
homeowners with the unnecessary “costs and terms” of “overreaching creditors”). The
HLPA was enacted to prevent the kinds of practices the Romeros allege Equity One engaged
in here: actively soliciting vulnerable homeowners and offering tempting incentives such as
up-front cash to induce them to refinance their mortgages with unfavorable terms or without
regard for the borrowers’ ability to repay the loans and avoid loss of their homes. Whether
the Romeros’ allegations are accurate is not before us, but a court must consider the
allegations in order to determine whether the lender violated the HLPA.

C. Federal Law Does Not Preempt the Protections of the HLPA

{51} Although the Court of Appeals did not review the conclusion of the district court that
federal law preempts the HLPA, see Bank of N.Y., 2011-NMCA-110, ¶ 6, our discussion of
the applicability of the HLPA to New Mexico home mortgage loans would be incomplete
without our addressing the issue.

{52} “The doctrine of preemption is an outgrowth of the Supremacy Clause of Article VI
of the United States Constitution.” Self v. United Parcel Serv., Inc., 1998-NMSC-046, ¶ 7
n.3,

126 N.M. 396

,

970 P.2d 582

(“‘This Constitution, and the Laws of the United States . . .

16
shall be the supreme Law of the Land.’” (quoting Article VI of the United States
Constitution)). “We review issues of statutory and constitutional interpretation de novo.”
State v. Lucero, 2007-NMSC-041, ¶ 8,

142 N.M. 102

, 163 P.3d 489.

{53} The Bank of New York’s argument that federal law preempts the HLPA relies on
regulatory provisions of the New Mexico Regulation and Licensing Department’s Financial
Institutions Division recognizing that “[e]ffective February 12, 2004, the [federal Office of
the Comptroller of Currency] published a final rule that states, in pertinent part: ‘state laws
that obstruct, impair, or condition a national bank’s ability to fully exercise its federally
authorized real estate lending powers do not apply to national banks’ (the ‘OCC
preemption’)” and concluding that “[b]ased on the OCC preemption, since January 1, 2004,
national banks in New Mexico have been authorized to engage in certain banking activities
otherwise prohibited by the [HLPA].” 12.16.76.8(G)-(H) NMAC. These administrative
provisions have not been updated since 2004. See 12.16.76.8 NMAC (noting only one
amendment, on June 15, 2004, since the January 1, 2004, effective date of the regulation).

{54} While the Bank is correct in asserting that the OCC issued a blanket rule in January
2004, see 12 C.F.R. § 34.4(a) (2004) (preempting state laws that impact “a national bank’s
ability to fully exercise its Federally authorized real estate lending powers”), and that the
New Mexico Administrative Code recognizes this OCC rule, neither the Bank nor our
administrative code addresses several actions taken by Congress and the courts since 2004
to disavow the OCC’s broad preemption statement.

{55} In 2007, the United States Supreme Court reiterated its position on preemption by
the National Bank Act (NBA), stating that

[i]n the years since the NBA’s enactment, we have repeatedly made clear that
federal control shields national banking from unduly burdensome and
duplicative state regulation. Federally chartered banks are subject to state
laws of general application in their daily business to the extent such laws do
not conflict with the letter or the general purposes of the NBA.

Watters v.Wachovia Bank, N.A.,

550 U.S. 1

, 11 (2007) (citation omitted). Relying primarily
on an earlier case, Barnett Bank of Marion Cnty., N.A. v. Nelson,

517 U.S. 25

(1996), the
Watters Court clarified that “[s]tates are permitted to regulate the activities of national banks
where doing so does not prevent or significantly interfere with the national bank’s or the
national bank regulator’s exercise of its powers.” Watters, 550 U.S. at 12. “But when state
prescriptions significantly impair the exercise of authority, enumerated or incidental under
the NBA, the State’s regulations must give way.” Id.

{56} Two years later, in Cuomo v. Clearing House Ass’n, L.L.C.,

557 U.S. 519

, 523-24
(2009), the United States Supreme Court specifically addressed “whether the [OCC’s]
regulation purporting to pre-empt state law enforcement can be upheld as a reasonable
interpretation of the National Bank Act.” The Cuomo Court ultimately rejected part of the

17
OCC’s broad statement of its preemption powers as unsupported. See Cuomo, 557 U.S. at
525, 528-29 (distinguishing the power to enforce the law against a national bank, which a
state retains notwithstanding the NBA, from visitorial powers—including audits, general
supervision and control, and oversight of national banks—which the NBA preempts as
exclusive to the OCC). Although the Cuomo Court did not specifically address the
preemption rule on real-estate lending at issue here, its rationale is nonetheless dispositive
in its acknowledgment that “[n]o one denies that the [NBA] leaves in place some state
substantive laws affecting banks,” id. at 529, and in its recognition that states “have enforced
their banking-related laws against national banks for at least 85 years,” id. at 534.

{57} In addition, in 2010, Congress explicitly clarified state law preemption standards for
national banks in Pub. L. No. 111-203, § 1044, 124 Stat. 1376 (2010) of the Dodd-Frank
Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act preempts state
consumer financial law in only three circumstances: (1) if application of the state law “would
have a discriminatory effect on national banks, in comparison with the effect of the law on
a bank chartered by that State,” (2) in accordance with the legal standard set forth in Barnett
Bank when the state law “prevents or significantly interferes with the exercise by the
national bank of its powers,” or (3) by explicit federal preemption. See id.; 12 U.S.C.A. §
25b(b)(1)(A)-(C) (2010).

{58} In response to this legislation, the OCC corrected its 2004 blanket preemption rule
to conform to the legislative clarifications. See Dodd-Frank Act Implementation, 76 Fed.
Reg. 43549-01, 43552 (July 21, 2011) (proposing changes to “the OCC’s regulations relating
to preemption (12 CFR . . . 34.4) (2004 preemption rules) . . . to implement the provisions
of the Dodd-Frank Act that affect the scope of national bank . . . preemption” by removing
from Subsection a the blanket clause, “‘state laws that obstruct, impair or condition a
national bank’s ability to fully exercise its Federally authorized [real estate lending] powers
do not apply to national banks’” and by clarifying in Subsection b that “state law is not
preempted to the extent . . . consistent with the Barnett decision”). Compare 12 C.F.R. §
34.4(a) & (b) (2011), with 12 C.F.R. § 34.4(a) & (b) (2004). Neither Dodd-Frank nor the
corrected OCC regulations created new law concerning the scope of national bank
preemption but instead clarified preexisting requirements of the NBA and the 1996 opinion
of the United States Supreme Court in Barnett.

{59} Applying the Dodd-Frank standard to the HLPA, we conclude that federal law does
not preempt the HLPA. First, our review of the NBA reveals no express preemption of state
consumer protection laws such as the HLPA. Second, the Bank provides no evidence that
conforming to the dictates of the HLPA prevents or significantly interferes with a national
bank’s operations. Third, the HLPA does not create a discriminatory effect; rather, the
HLPA applies to any “creditor,” which the 2003 statute defines as “a person who regularly
[offers or] makes a home loan.” Section 58-21A-3(G) (2003). Any entity that makes home
loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or
nationally chartered bank. See § 58-21A-2 (providing legislative findings on abusive
mortgage lending practices that the HLPA is meant to discourage).

18
{60} Accordingly, we hold that the HLPA is a state law of general applicability that is not
preempted by federal law. We recommend that New Mexico’s Administrative Code be
updated to reflect clarifications of preemption standards since 2004.

III. CONCLUSION

{61} For the reasons stated herein, we reverse the decisions below and remand this matter
to the district court with instructions to vacate its judgment of foreclosure.

{62} IT IS SO ORDERED.

____________________________________
CHARLES W. DANIELS, Justice

WE CONCUR:

____________________________________
PETRA JIMENEZ MAES, Chief Justice

____________________________________
RICHARD C. BOSSON, Justice

____________________________________
EDWARD L. CHÁVEZ, Justice

____________________________________
BARBARA J. VIGIL, Justice

19

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

STEPHANIE TASHIRO-TOWNLEY;
SCOTT C. TOWNLEY,
Plaintiffs – Appellants,

v.

BANK OF NEW YORK MELLON, as
Trustee for the Certificateholders CWL,
Inc. Asset Backed Certificates, Series
2005-10, FKA Bank of New York; et al.,
Defendants – Appellees.

EXCERPT:

However, Washington law provides an exception to the waiver doctrine for claims for damages alleging violations of the Washington Consumer Protection Act (“CPA”). See Wash. Rev. Code § 61.24.127(1)(b). After the district court dismissed plaintiffs’ CPA claim, the Washington Supreme Court decided Bain v. Metropolitan Mortgage Group, Inc., 285 P.3d 34, 51 (Wash. 2012), which held that a plaintiff may meet the public interest element of a CPA claim by alleging that Mortgage Electronic Registration System Inc. was unfairly or deceptively characterized as the beneficiary of a deed of trust. See id. at 49 (elements of a CPA claim). Because the district court did not have the benefit of Bain when it issued its order of dismissal, we remand to allow the court to reconsider plaintiffs’ CPA claim.

AFFIRMED in part, VACATED in part, and REMANDED.

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF RICHMOND

THE BANK OF NEW YORK MELLON F/K/A
THE BANK NEW YORK, AS SUCCESSOR TO
JP MORGAN CHASE BANK, N.A., AS INDENTURE
TRUSTEE, ON BEHALF OF THE HOLDERS OF THE
TERWIN MORTGAGE TRUST 2006-6,
ASSET-BACKED SECURITIES, SERIES 2006-6,
Plaintiff

against

BARBARA PERRICONE A/K/A BARBARA ANN
PERRICONE, SILVER FALCON PROPERTIES, LLC.,
CITY OF NEW YORK ENVIRONMENTAL CONTROL
BOARD; CITY OF NEW YORK PARKING VIOLATIONS
BUREAU; CITY OF NEW YORK TRANSIT ADJUDICATION
BUREAU, ET AL.,
Defendants
.
Upon the foregoing cited papers, the Decision and Order on this Motion is as follows:
Defendant Silver Falcon Properties moves for an order pursuant to CPLR 3211 (a)(5) to
dismiss the cause of action for reformation based on statute of limitations, CPLR 3211 (a)(7) to
dismiss for failure to state a cause of action, and pursuant to CPLR 3211 (a)(1) for dismissal based
on documentary evidence. Defendant Barbara Perricone cross moves for an order pursuant to CPLR
3211 (a)(5) to dismiss the reformation claim based on statute of limitations and pursuant to CPLR
3211 (a)(7) to dismiss for failure to state a cause of action upon which relief can be granted. The
motion and cross motion are granted.

Facts

This is a foreclosure action whereby plaintiffs seek to divest defendant Perricone of her
equitable interest in the premises known as 1027 Hylan Boulevard, Staten Island, New York due to
a default on the accompanying mortgage note. On or about April 6, 2006, defendant Perricone
executed a mortgage on what the instrument describes as 1027 Hylan Boulevard, Staten Island, New
York. The mortgage application filed in connection with the instrument states defendant Perricone’s
current address as 1027 Hylan Boulevard and further identifies the same as the subject property
address. The application indicates it is for a refinance loan originally acquired in 1977 for a cost of
$60,000. Defendant Perricone is also the record owner of additional piece of land known as 131
Radcliff Road, Staten Island, New York. The Radcliff Road and Hylan Boulevard location are both
listed on the application, with 131 Radcliff Road having an existing mortgage or lien of $752,172
and 1027 Hylan Boulevard having an existing $2,821 mortgage or lien. The mortgage itself contains
a property description in the “Transfer Of Rights In The Property” section which states it is the first
mortgage lien on the premises and identifies the street address as 1027 Hylan Boulevard. However,
the legal description in “Schedule A” reads as follows:

BEGINNING at a point on the Northerly side of Radcliff Road distant
80 feet Westerly from the corner formed by the intersection of the Northerly
side of Radcliff Road and the Westerly side of Briarcliff Road; RUNNING
THENCE South 57 degrees 09 Minutes 19 seconds East, along the Northerly
side of Radcliff Road 80 feet; RUNNING THENCE North 32 degrees 50 minutes
41 seconds East, 100 feet; RUNNING THENCE South 57 degrees 09 minutes
19 seconds West, 80 feet; RUNNING THENCE North 32 degrees 50 minutes
41 seconds East, 100 feet to the Northerly side of Radcliff Road to the point
or place of beginning

The description also refers to the premises as 131 Radcliff Road, Staten Island, New York
and identifies the block and lot as 3232 and 30, respectively. Plaintiffs contend this legal description
was recorded with the mortgage in error and is not otherwise incorporated into the mortgage
contract. To this end, they submitted defendant Perricone’s initial application and a different
“Schedule” which reads as follows:

BEGINNING at a point on the Northerly side of Hylan Boulevard, distant
61.47 feet Westerly from the corner formed by the intersection of the Westerly
side of Briarcliff Road and the said Northerly side of Hylan Boulevard;

RUNNING THENCE North 32 degrees 50 minutes 41 seconds East
97.14 feet to a point; THENCE South 67 degrees 55 minutes 43 seconds East
84.01 feet to a point; THENCE south 12 degrees 46 minutes 48 seconds West
101.83 feet to a point on the Northerly side of Hylan Boulevard; THENCE
along the said Northerly side of Hylan Boulevard on a curve deflecting to the
right having a central angle of 3 degrees 40 minutes 22 seconds a distance
of 49.68 feet to the point or place of beginning

Plaintiff’s obtained the note in question via an assignment from Mortgage Electronic
Registration Systems which was recorded with the Clerk of Richmond County on May 8, 2013. This
assignment purported to transfer Block 3230 Lot 44 which describes the Hylan Boulevard premises
and not the Radcliff Road Location. Plaintiffs thereafter filed this action seeking to 1) reform the
legal description of the premises recorded with the mortgage and then 2) foreclose on the reformed
mortgage. Plaintiff’s main contention is that defendant Perricone intended to mortgage the Hylan
Boulevard premises. However, plaintiffs do not submit any affidavits that suggest the parties intent
was to ever mortgage the Hylan Boulevard premises. Instead, they rely on the mortgage application
which lists 1027 Hylan Boulevard as the subject premises and argue the legal description contained
in “Schedule A” was inadvertently included during the closing process without providing evidence
suggesting that the mortgagor intended to encumber the Hylan Boulevard location.

In defendant’s verified answer to the plaintiff’s complaint, defendant Perricone denied that
1027 Hylan Boulevard was the subject premises of the disputed mortgage. Defendants also submitted
the affidavit of Mr. Achilles Gatanas, a mortgage loan processor for Real Estate Mortgage Network,
who averred that he assisted defendant in obtaining the Home Equity line of credit and that defendant
intended to mortgage the 131 Radcliff Road location. He further indicated that defendant Perricone
had told him the loan documentation incorrectly identified 1027 Hylan Boulevard and wished the
loan documentation be changed to reflect the Radcliff Road property. Thereafter, defendants filed
a motion pursuant to CPLR 3212(a) (1), (5) and (7) seeking to dismiss the cause of action based on
reformation inasmuch as they argue the evidence provided by plaintiffs was insufficient to suggest
the mutual agreement of the parties was incorrectly expressed in the written agreement. Defendant
Silver Falcon contends they have a money judgement on the 1027 Hylan Boulevard property entered
by the Supreme Court, Kings County on May 29, 2012 and that plaintiff’s interest is limited solely
to the Radcliff Road location inasmuch as the legal description filed with the mortgage at issue
identifies that premises and omits the metes and bounds description of 1027 Hylan Boulevard.

Discussion

CPLR 3211(a)(7)

“A claim for reformation of a written instrument must be grounded upon either a mutual
mistake or fraudulently induced unilateral mistake” contained within the recorded document. 1 This
is because the purpose of reformation is to “restate the intended terms of an agreement” when the
written agreement does not reflect the original intention of the parties.2 It is presumed that “a
deliberately prepared and executed document manifests the true intentions of the parties” so much
so that “the proponent of reformation is required to proffer evidence, which in no uncertain terms,
evinces fraud or mistake and the intended agreement between the parties.”3 Motions based on CPLR
3211 (a)(1) and (a)(5) both require a cognizable claim before one may apply a defense based on
documentary evidence or claim the action is untimely.4 Thus, it is proper to evaluate whether the
plaintiff’s have stated a cause of action upon which relief may be granted first. A CPLR 3121(a)(7)
motion predicated on the plaintiff’s failure to state a claim requires the court to “accept the facts as
alleged in the complaint as true, accord plaintiffs the benefit of every possible inference, and
determine only whether the facts as alleged fit within any cognizable legal theory.”5 While a court
may consider evidentiary material submitted by a defendant, so long as the motion is not converted
into one for summary judgement, and, “unless it has been shown that a material fact as claimed by
the [plaintiff] to be one is not a fact at all and unless it can be said that no significant dispute exists,”
dismissal is inappropriate.6 Although plaintiff’s complaint does not specify whether the alleged
mistake in the legal description of the premises was based on either fraud, mutual mistake or a
scriveners error, the liberal pleading standard allows the court to find the existence of any cognizable
theory.

Reformation based on a scrivener’s error requires “proof of a prior agreement between
parties” which was not accurately reduced to writing. If “the only mistake alleged is in the reduction
of that agreement to writing,” then such an error may be corrected, no matter how it occurred.7 Here,
plaintiff’s contend that “the description to Borrower’s other property was somehow inadvertently
placed in and amongst” the closing papers such that the legal description referred to 131 Radcliff
Road instead of accurately describing the intended premises of 1027 Hylan Boulevard. As stated in
the facts, defendant Perricone’s verified answer to the plaintiff’s complaint denied that 1027 Hylan
Boulevard was the subject premises of the disputed mortgage. The affidavit of Mr. Gatanas further
erodes the plaintiff’s position since he indicated that defendant had told him the loan documentation
incorrectly identified 1027 Hylan Boulevard and wished the loan documentation be changed to
reflect the Radcliff Road property. Plaintiff’s have not submitted any evidence which would suggest
the parties in fact agreed and intended that the Hylan Boulevard premises was the subject of the loan.
Thus, it is clear that the requisite standard of showing prior agreement has not been met. As such,
the equitable relief of reformation due to scrivener’s error is unavailable to the plaintiffs.8

Generally, where a written instrument fails to conform to an agreement between parties, a
court will reform said instrument to conform it to the intentions of the parties provided the mistake
concerns a fundamental assumption of the contract.9 However, reformation based on mutual mistake
“requires proof, by clear and convincing evidence,” that the document incorrectly expresses the
intentions of either party.10 “In the case of unilateral mistake, it must be alleged that one party to the
agreement fraudulently misled the other, and that the subsequent writing does not express the
intended agreement.”11 Claims for unilateral mistake cannot be substantiated by conclusory
allegations but require pleading misrepresentation of a material fact, falsity, intent and deception.12
Here, it is clear that no cause of action for unilateral mistake has been made out in as much as the
plaintiff’s complaint does not specify with any particularity the required elements.

As the legal description of a property contained within a document trumps a conflicting street
address13, plaintiffs would need to establish that the intent of the mortgagor and mortgagee was to
identify 1027 Hylan Boulevard as the subject premises and that this intent was not carried out in the
ultimate memorialization of the agreement. Plaintiffs fail to provide any non-hearsay evidence other
than an attorney affidavit which would suggest the intent of either party was to encumber the 1027
Hylan Boulevard premises. This is especially true considering defendant’s verified answer and
affidavit of Mr. Gatanas which together indicate that defendant Perricone’s intent entering into the
process was to mortgage the Radcliff Road premises. It would be improper to reform the deliberately
executed document because plaintiff is unable to show exactly what was agreed upon by the parties
and thus is unable to meet the heavy burden required to allow reformation.14 The plaintiff’s have
failed to make out a cause of action based on any theory of reformation. Therefore, defendant’s
motion based on CPLR 3211(a)(7) is granted.

CPLR 3211 (a)(5)

Assuming, arguendo, that plaintiffs have made out a viable cause of action for reformation,
it is otherwise barred by the applicable statute of limitations period which is six years from the date
the mistake was made.15 “On a motion to dismiss a complaint pursuant to CPLR 3211(a)(5) on
statute of limitations grounds, the moving defendant must establish, prima facie, that the time in
which to commence the action has expired.”16 According to plaintiff’s submissions, the mistake was
made at the closing when the errant description of the premises inadvertently became part of the
executed mortgage. As the closing took place in 2006, in order for the action to be timely filed, it
must have initiated by 2012.

CPLR 3211 (a)(1)

To prevail on a CPLR 3212(a)(1) motion, a moving party must demonstrate that “the
documentary evidence utterly refutes plaintiff’s factual allegations, conclusively establishing a
defense as a matter of law.”17 In order to be considered documentary, the proffered evidence “must
be unambiguous” and “essentially unassailable.”18 It is axiomatic that when presented with a
discrepancy between the street address and legal description of a piece of property, the legal
description controls.19 The legal description attached to the mortgage unequivocally refers to 131
Radcliff Road. Therefore, it trumps any conflicting street addresses contained in the documentation
and would warrant dismissal based on CPLR 3211 (a)(1).

Foreclosure

Even though the action for reformation is hereby dismissed, plaintiff may still maintain their
foreclosure action on the mortgage they do hold. In order to substantiate a foreclosure action, the
plaintiff must establish that the defendant was a party to the mortgage and that she failed to make
the required payments inasmuch as the essential elements of a cause of action for breach of a
mortgage contract are “the existence of a contract, the plaintiff’s performance under the contract, the
defendant’s breach of that contract, and resulting damages.”20 Here, plaintiff has submitted sufficient
evidence to buttress their foreclosure claim. The record reveals the existence of a signed and
executed mortgage, as well as a mortgage application signed by defendant on April 6, 2006 and
required her to “make Minimum Payments” in one-hundred and twenty equal monthly installments
until the maturity date of April 1st, 2026. Defendant was further required to pay the entire
outstanding balance at the maturity date. The mortgage language also preserved the right of the
lender to foreclose on the property by stating that default in payment may result in a loss of the
secured premises. The information contained in the record indicates that a principal balance of
$398,650.83 remained and that the last monthly installment payed was on August 5, 2011.

Furthermore, any foreclosure action would be timely inasmuch as the statute of limitations
for an action “upon a mortgage of real property” is six years.21 This period begins to run “from the
due date for each unpaid installment, or from the time mortgagee is entitled to demand full payment,
or from the date the mortgage debt has been accelerated.”22 In other words, accrual of the limitations
period only begins “when the claim becomes enforceable, i.e. when all elements of the [cause of
action] can be truthfully alleged in a complaint.”23 Thus, an action for foreclosure would be timely
until September 5, 2017, which is six years from the date of the first unpaid installment.

Accordingly, it is hereby:

ORDERED, that the motions and cross motions to dismiss The Bank Of New York
Mellon’s foreclosure action made by Silver Falcon Properties, LLC and Barbara Perricone,
respectively are granted.

ENTER,
DATED: November 22, 2013
Joseph J. Maltese
Justice of the Supreme Court

via: Gary Dubin

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

EDWARD YUZON ABUBO, and
SARANNE KAGEL ABUBO,
Plaintiffs,

vs.

THE BANK OF NEW YORK
MELLON; COUNTRYWIDE HOME
LOANS, INC.; MORTGAGE
ELECTRONIC REGISTRATION
SYSTEMS, INC.; BANK OF
AMERICA, N.A.; and DOES 1-50.
Defendants.

ORDER DENYING DEFENDANT BANK OF NEW YORK MELLON’S
MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

This action is again before the court after two prior dispositive Orders.
Defendant Bank of New York Mellon (“Defendant” or “BONYM”) moves for
summary judgment on Plaintiffs Edward and Saranne Abubo’s (the “Abubos” or
“Plaintiffs”) only remaining Count — a claim for damages under 15 U.S.C.
§ 1640(a) for BONYM’s alleged failure to honor Plaintiffs’ notice of rescission
under 15 U.S.C. § 1635. Based on the following, the Motion is DENIED.

[…]

courtesy of Propublica

IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK

CARMEN M. SEGARRA,

Plaintiff,

V.

THE FEDERAL RESERVE BANK of
NEW YORK; MICHAEL SILVA;
MICHAEL KOH; and JOHNATHON
KIM,

Defendants.

COMPLAINT

Plaintiff Carmen M. Segarra (hereinafter “Carmen” or “Carmen Segarra”), by and
through her attorney, Linda . Stengle, Esq., brings this action against Defendants Federal
Reserve Bank of New York, Michael Silva, Michael Koh, and Johnathon Kim

(hereinafter “Defendants”). Plaintiff Carmen Segarra alleges as follows:

I. INTRODUCTION

1. This action arises out of Defendants’ violations of 12 U.S.C. 183] and other
laws prohibiting obstruction and interference with a bank examiner’s examination
and retaliation for her preliminary examination findings.

2. On October 31, 2011, Carmen Segarra accepted full time employment offered to
her by Defendant Federal Reserve Bank of New York. Carmen’s title was Senior
Bank Examiner, and she was assigned to examine the Legal and Compliance
divisions of the Goldman Sachs Group (hereinafter “Goldman” or “Goldman
Sachs”).

Through their misconduct, Defendants repeatedly obstructed and interfered with
Carmen’s examination of Goldman over several months. Finally, in May 2012,
Defendants directed Carmen to change the findings of her examination. Carmen
refused. Because Carmen refused to change her findings, Defendants terminated
her three business days later, on May 23, 2012.

In addition, Defendants improperly caused Carmen Segarra reputational and
professional harm by firing her for cause. Specifically, they fired her because
they suddenly, after months receiving evidence, changed their position and said
Carmen’s finding that Goldman Sachs had no conflict of interest policy in
compliance with SR 08-08 was not credible.

Defendants caused Carmen Segarra’s career in banking to be irreparably
damaged.

Plaintiff Carmen Segarra seeks reinstatement to her position as Senior Bank
Examiner, back pay, compensation for lost benefits, compensatory damages,
punitive damages, and attorney’s fees, costs, and expenses, in an amount
determined by the Court, to redress Defendants’ illegal and improper conduct.

[…]

FULL COMPLAINT w/ EMAILS

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SANTA CLARA
APPELLATE DIVISION

CCP § 1162 Notice Requirements; CCP § 1161a’s Required Compliance with CC § 2924

Bank of New York Mellon v. Preciado, Nos. 1-12-AP-001360 & 1-12-AP-001361 (Cal. App. Div. Super. Ct. Aug. 19, 2013): To be effective, UD notices to quit must be properly served: 1) by personal service; 2) or if personal service failed, by leaving the notice with a person of “suitable age and discretion” at the residence or business of the tenant (or former borrower) and then mailing a copy; 3) or if the first two methods failed, by posting a notice at the residence and mailing a copy. CC § 1162. Here, the process server’s affidavit stated that “after due and diligent effort,” he executed “post and mail” service. The trial court accepted this statement as evidence of compliance with CC § 1162, but the appellate division reversed. The statute indicates that “post and mail” is the last available method of service, not the first. Since the affidavit does not specifically assert that personal service was ever attempted, the trial court erred in assuming that service complied with CC § 1162. Further, defendants’ appeal based on defective service was not barred because they failed to assert it as an affirmative defense. Proper service is an “essential [UD] element” and tenants’ “general denial” of each statement in the complaint put service at issue.

Post-foreclosure UD plaintiffs must also demonstrate duly perfected title and compliance with CC § 2924 foreclosure procedures. CCP § 1161a. “Duly” perfected title encompasses all aspects of purchasing the property, not just recorded title. The trial court relied on plaintiff’s trustee’s deed upon sale, showing plaintiffs purchased the property at the foreclosure sale. The court ignored contradicting testimony alleging that the property was sold to the loan’s servicer, not plaintiff. Further, “to prove compliance with section 2924, the plaintiff must necessarily prove the sale was conducted by the trustee.” Here, the trustee’s deed upon sale identifies one trustee, but the DOT identifies another. The trial court erred in accepting the recorded trustee’s deed upon sale as conclusive evidence of compliance with § 2924, and the appellate division reversed.

_________________________________________________________________________________

 . . .

Sale in Compliance with Civil Code § 2924 et seq, and the Deed of Trust

Why is MERS listed as a defendant if it was assigning for the Plaintiff?? Exactly…conflicts here too!

SUPREME COURT – STATE OF NEW YORK
IAS PART 48 – SUFFOLK COUNTY

PRESENT: Hon. HECTOR D. LASALLE
Justice of the Supreme Court
x .

The Bank of New York fka The Bank of New York
as successor to JPMorgan Chase Bank, N.A. as
Trustee for Holders of SAM1 I1 Trust 2006-AR7,

Plaintiff,

v.

-against-

Jason Mungro, Mortgage Electronic Registration
Systems, Inc., acting solely as a nominee for
Countrywide Bank, N.A., its successors and
assigns, and “JOHN DOE #1” through “JOHN
DOE #10”, the last ten names being fictitious and
unknown to the plaintiff, the person or parties,
if any, having or claiming an interest in or lien
upon the mortgaged premises described in the
Complaint,

Defendants.

H/T Living Lies

 IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

via BERGMAN & GUTIERREZ

This is another great ruling… The last time we wrote, the judge had overruled the Defendant’s demurrer. This time, they filed for Summary Judgment/Adjudication, and the judge denied their motion! One of the core issues in this case is whether MERS can assign an interest in a mortgage loan in an Assignment of Deed of Trust in its own name. In other words, whether MERS was required to disclose on whose behalf it was “assigning” the mortgage loan as required under the statute of frauds.

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via: Gregory Leyh, leyhlaw.com

Readers may be interested in the attached opinion holding that, despite defendants’ claim of lack of standing, Missouri homeowners have a right to sue securitization trusts for wrongful foreclosure.

THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION

CHARLES AND NICOLE BALL, on
behalf of themselves and all others similarly
situated, et al.,

Plaintiffs,

v.

THE BANK OF NEW YORK, AS
TRUSTEE FOR CWALT, INC., et al.,

Defendants.

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Reuters-

A federal appeals court in the United States has withdrawn a ruling that put Bank of New York Mellon Corp (BK.N) ahead of former customers of Sentinel Management Group seeking to recoup money lost in the futures broker’s 2007 collapse.

In a two-line ruling that gave no further explanation, the U.S. Court of Appeals for the Seventh Circuit withdrew an August 9 opinion. “This appeal remains under consideration by the panel,” the three-judge panel wrote in a ruling dated November 30.

[REUTERS]

[ipaper docId=115407212 access_key=key-yiyo42fl76h1x54e0e4 height=600 width=600 /]

BANK OF NEW YORK MELLON, PLAINTIFF-APPELLEE,
v.
RHONDA ROARTY, et al., DEFENDANTS-APPELLANTS.

Attorney Bruce M. Broyles, 164 Griswold Drive, Boardman, Ohio 44512, for Defendant-Appellant.

Gene Donofrio, Joseph J. Vukovich, Cheryl L. Waite, Judges.

OPINION

DONOFRIO, J.

{¶ 1} Defendants-appellants, Rhonda and Mark Roarty, appeal from a Mahoning County Common Pleas Court judgment granting summary judgment in favor of plaintiff-appellee, The Bank of New York Mellon, on appellee’s foreclosure complaint.

{¶ 2} On October 3, 2003, Rhonda executed and delivered a Promissory Note (Note) to Novastar Mortgage, Inc. (Novastar). The Note was secured by a mortgage on the property located at 2683 Morningside Place (Mortgage). The Mortgage was executed by appellants and delivered on the same day to Mortgage Electronic Registration Services, Inc. (MERS) as a nominee for Novastar.

{¶ 3} The Note was sold to Novastar Mortgage Funding Trust, Series 2003-4. Novastar indorsed the Note in blank and transferred possession to the trustee, JP Morgan Chase Bank. Appellee succeeded JP Morgan as trustee on October 31, 2007.

{¶ 4} Appellee filed a foreclosure complaint against appellants on May 1, 2009, asserting that Rhonda had defaulted on the Note and that appellants owed $194,083.50, plus interest.

{¶ 5} Appellee subsequently filed a motion for summary judgment. It alleged that there was no genuine issue of material fact: Rhonda defaulted on the Note and Mortgage; it sent her a Notice of Default; the default was not cured; the Note was accelerated; and it had not received any payment since December 2007. Appellants opposed the motion asserting that there were genuine issues of material fact surrounding the service of the default notice, appellee’s standing to bring the foreclosure action, violations of the Truth in Lending Act, the balance due on the Note, and appellee’s “unclean hands.”

{¶ 6} The trial court, finding no genuine issues of material fact, granted appellee’s summary judgment motion.

{¶ 7} Appellants filed a timely notice of appeal on March 3, 2010. Upon appellants’ motion, the trial court issued a stay of its order pending this appeal as long as appellants posted a supersedeas bond.

{¶ 8} After the appeal was filed, this matter was stayed for some time due to bankruptcy proceedings. The bankruptcy stay has now been lifted.

{¶ 9} Initially, we must address a motion to strike filed in this court by appellee. Appellee asks us to strike portions of appellants’ brief, arguing that appellants raise new issues with this court that they failed to raise in the trial court. Specifically, appellee contends that appellants failed to argue in the trial court (1) that certified mail is not first class mail for purposes of sending notices under the Note and Mortgage and (2) that the Note and Mortgage were intentionally separated at their conception and that the presumption that the mortgage follows the note is inapplicable.

{¶ 10} In fact, however, appellants raised these arguments in their reply to plaintiff’s motion for summary judgment. Appellants specifically argued that appellee failed to comply with the terms of the Note and Mortgage in delivering the notice of default, i.e., “There is an issue in this case as to service of the notice of default,” “there is also no evidence the notice was received, by anyone, as the certified mail return receipt shows no receipt signature.” (Def. Reply to S.J.). And appellants attached Rhonda’s affidavit stating that she never received the notice. (Def. Reply to S.J., Ex. D-3, ¶19). Additionally, appellants argued, “there is an issue in this case as to whether the Plaintiff has standing to bring this action” and “the Plaintiff has produced NO evidence that it was the holder of the note and mortgage at the time the complaint was filed.” (Def. Reply to S.J.). These arguments in the trial court sufficiently preserved the issues for appeal.

{¶ 11} Thus, we must overrule appellee’s motion to strike.

{¶ 12} Turning now to the merits, appellants raise a single assignment of error, which they break down into four issues. The assignment of error states:

{¶ 13} “THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT TO APPELLEE WHEN THERE WERE GENUINE ISSUES OF MATERIAL FACT STILL IN DISPUTE.”

{¶ 14} In reviewing a trial court’s decision on a summary judgment motion, appellate courts apply a de novo standard of review. Cole v. Am. Industries & Resources Corp., 128 Ohio App.3d 546, 552, 715 N.E.2d 1179 (1998). Thus, we shall apply the same test as the trial court in determining whether summary judgment was proper. Civ.R. 56(C) provides that the trial court shall render summary judgment if no genuine issue of material fact exists and when construing the evidence most strongly in favor of the nonmoving party, reasonable minds can only conclude that the moving party is entitled to judgment as a matter of law. State ex rel. Parsons v. Flemming, 68 Ohio St.3d 509, 511, 628 N.E.2d 1377 (1994). A “material fact” depends on the substantive law of the claim being litigated. Hoyt, Inc. v. Gordon & Assoc., Inc., 104 Ohio App.3d 598, 603, 662 N.E.2d 1088 (1995), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S.Ct. 2505 (1986).

{¶ 15} Appellants’ first issue asks:

{¶ 16} “Whether Appellee satisfied the condition precedent by providing Appellants with Notice of Acceleration.”

{¶ 17} Appellants contend that appellee failed to provide them with a proper notice of acceleration. They claim that the February 18, 2008 Notice of Default (Notice), which appellee attached to its summary judgment affidavit, created a genuine issue of material fact. Appellants assert there is no evidence that the Notice was ever sent or delivered.

{¶ 18} Section 15 of the Mortgage, titled “Notices,” provides in part:

{¶ 19} “All notices given by Borrower or Lender in connection with this Security Instrument must be in writing. Any notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means.”

{¶ 20} Appellants assert that the Notice was not sent by first class mail. If it was sent, they argue, it was sent by certified mail. Further, appellants claim that appellee only provided evidence that one attempt was made to deliver the Notice, not that delivery was successful. In addition, appellants cite to Rhonda’s affidavit stating that she never received the Notice.

{¶ 21} Because appellee failed to comply with the terms of the Mortgage and because notice of default is a condition precedent to filing a foreclosure complaint, appellants contend that summary judgment was not proper.

{¶ 22} As brought to our attention by appellee, the Note provides three instances where notice is mandatory: (1) “the Note Holder will deliver or mail me a notice of any changes in my adjustable interest rate * * * before the effective date of any change” (Note ¶4); (2) “[a]ny notice that must be given to the Note Holder under this Note will be given by delivering it or by mailing it by first class mail to the Note Holder” (Note ¶8); and (3) “any notice that must be given to me [the borrower] under this Note will be given by delivering it or by mailing it by first class mail to me” (Note ¶8). (Emphasis added.)

{¶ 23} Unlike the above language, the language of the acceleration clause is not mandatory:

{¶ 24} “If I (Borrower) am in default, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of Principal which has not been paid and all the interest that I owe on that amount.” (Note ¶7(C); Emphasis added.)

{¶ 25} Appellee argues that the language of the acceleration clause is discretionary, as opposed to mandatory. While this is true, appellee places the emphasis in the wrong place. Instead of meaning that the lender has the option of whether or not to send a notice of default to the borrower, this paragraph means that it is at the lender’s discretion whether or not to require the borrower to immediately pay the full amount of the loan plus interest. At best, this language is ambiguous and must be construed in appellant’s favor. Allason v. Gailey, 189 Ohio App.3d 491, 2010-Ohio-4952, at ¶33.

{¶ 26} Moreover, Paragraph 8 of the Note is titled “GIVING OF NOTICES.” Thus, this paragraph governs the giving of all notices in regard to the Note. It does not make sense that the “GIVING OF NOTICES” paragraph would apply to all notices under the Note except for those notices under the acceleration clause. And Paragraph 8 provides that notice will be given “by delivering it or by mailing it by first class mail.”

{¶ 27} Per the above quoted terms of the Note, when appellee chose to accelerate payment, it was required to give appellants notice of default and acceleration by first class mail or by actual delivery. Thus, we must move on to determine whether appellee complied with the notice provisions prior to accelerating the balance due on the Note.

{¶ 28} In Natl. City Mortg. Co. v. Richards, 182 Ohio App.3d 534, 2009-Ohio-2556, the Tenth District faced a nearly identical situation. In that case the note at issue also required notice of acceleration to be given by first class mail or actually delivered. Instead, the bank sent notice of default and acceleration to Richards by certified mail. The bank then received a certified mail return receipt stating that the certified mail had been unclaimed. In her affidavit, Richards stated that she did not recall receiving a letter by certified mail. The court, in concluding that the attempted delivery by certified mail did not comply with the terms of the note reasoned:

{¶ 29} “Here, had National City mailed its notice of default via ordinary, first class mail, it would not only have been entitled to a rebuttable presumption of delivery based on the mailbox rule, but would have satisfied the express requirements of the note and mortgage. * * * National City mailed its notice of default to Richards only by certified mail, which was returned to National City unclaimed. National City did not mail a notice of default by ordinary mail, either contemporaneously with its certified-mail notice or after return of the certified-mail envelope. Accordingly, no presumption of delivery arose. Moreover, even if a rebuttable presumption had arisen upon National City’s certified mailing, the presumption was decisively rebutted by the uncontradicted evidence that the certified mail was returned to National City unclaimed.” Id. at ¶28.

{¶ 30} The court further found that the postal service’s return of the certified mail to the bank eliminated any possible inference of actual delivery to Richards. Id. at ¶29. The court concluded as a matter of law that the bank failed to give Richards the contractually required notice of default before accelerating the balance due on the note and initiating foreclosure proceedings. Id. at ¶30. Thus, it reversed the summary judgment that had been entered in the bank’s favor and dismissed the bank’s complaint.

{¶ 31} The evidence in this case is that appellee sent the Notice dated February 18, 2008, to Rhonda via certified mail. (Plt. Response to Defendant’s Reply to S.J., Ex. H). However, the section on the certified mail return receipt that is to be signed by the recipient upon delivery is unsigned. Additionally, a “Track & Confirm” search from the U.S. Postal Service that appellee included as an exhibit indicates the status of the certified mail as “Notice Left” and states that the postal service attempted to deliver the item on February 23, 2008. (Plt. Response to Defendant’s Reply to S.J., Ex. I).

{¶ 32} Additionally, in her affidavit, Rhonda averred that she never received the Notice, either by regular or by certified mail. (Def. Reply to S.J., Ex. D-3).

{¶ 33} Importantly, appellee has not asserted that it ever mailed the Notice by regular first class mail.

{¶ 34} Appellants have presented evidence to create a genuine issue of material fact as to whether appellee complied with the contractual terms of the Note regarding the notice required to accelerate the balance due and initiate foreclosure. Appellee did not send notice via regular first class mail. So there is no presumption that appellants received notice in this manner. Further, there is evidence that appellee attempted to provide the Notice by certified mail. However, the evidence indicates that the certified mail was never actually delivered to appellants. Thus, a genuine issue of material fact exists as to whether appellee complied with the notice requirement, which was a prerequisite to acceleration.

{¶ 35} Based on the above, appellants’ first issue has merit.

{¶ 36} Normally, given our resolution of appellants’ first issue, we would find appellants’ remaining issues to be moot. However, given that their second issue deals with appellee’s standing to initially file the lawsuit, we will address it also. Appellants’ second issue asks:

{¶ 37} “Whether Appellee was the real party in interest with standing to file at the time the lawsuit was instituted.”

{¶ 38} Appellants claim that appellee had not yet been assigned the Mortgage on the date it filed the lawsuit. They assert that appellee lacked standing to file the lawsuit on May 1, 2009, because the assignment of the Mortgage from MERS to appellee was not executed until May 13, 2009, and was not recorded until May 18, 2009.

{¶ 39} Civ.R. 17(A) provides that every action shall be prosecuted in the name of the real party in interest. In foreclosure actions, the current holder of the note and mortgage is the real party in interest. U.S. Bank Nat. Assoc. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-1178, ¶32. Summary judgment is not appropriate when a party cannot prove that it is the current holder of the note and mortgage. Id.

{¶ 40} In this case Rhonda executed and delivered the Note to Novastar Mortgage, Inc. on October 3, 2003. The Mortgage was executed by appellants and delivered on the same day to MERS as a nominee for Novastar. The Note was subsequently sold to Novastar Mortgage Funding Trust, Series 2003-4. Novastar indorsed the Note in blank and transferred possession to the trustee, JP Morgan Chase Bank. A “blank indorsement” is “an indorsement that is made by the holder of the instrument and that is not a special indorsement. When an instrument is indorsed in blank, the instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.” R.C. 1303.25(B).

{¶ 41} On October 31, 2007, appellee succeeded JP Morgan as trustee. Appellee filed the foreclosure complaint against appellants on May 1, 2009, including a copy of the Note indorsed in blank. On May 13, 2009, MERS assigned the Mortgage to appellee.

{¶ 42} In Marcino, this court addressed a situation where we did not have evidence of the assignment before us. In concluding that the bank was the real party in interest, we relied on the bank’s evidence of an allonge, indorsed in blank and its possession of the note. We concluded that the bank’s possession of the original note was sufficient evidence to establish that it was the real party in interest. Id. at ¶49. We reasoned:

{¶ 43} “For nearly a century, Ohio courts have held that whenever a promissory note is secured by a mortgage, the note constitutes the evidence of the debt and the mortgage is a mere incident to the obligation. Edgar v. Haines (1923), 109 Ohio St. 159, 164, 141 N.E. 837. Therefore, the negotiation of a note operates as an equitable assignment of the mortgage, even though the mortgage is not assigned or delivered. Kuck v. Sommers (1950), 100 N.E.2d 68, 75, 59 Ohio Abs. 400.” Id. at ¶52.

{¶ 44} Appellants assert that the law from Marcino, “the mortgage follows the note,” does not apply here because the Note and the Mortgage were separated in this case and the lender was not the mortgagee. They assert that Novastar was the lender according to the Note. However, the Mortgage was granted to MERS as the mortgagee.

{¶ 45} Appellants are correct. In Marcino, there was no evidence of the assignment of the mortgage, so it was a reasonable presumption that the note followed the mortgage. In this case, however, the Note and the Mortgage were separated. Thus, there was no presumption here that the Note followed the Mortgage.

{¶ 46} But this does not lead us to the conclusion that appellee was not the real party interest at the time it filed the complaint. MERS was the entity in possession of the Mortgage at that time. Per the terms of the Mortgage, MERS “is a separate corporation that is acting solely as a nominee for Lender [Novastar] and Lender’s successors and assigns [appellee].” (Mortgage, pg. 1; emphasis added). Thus, MERS was bound to act solely as appellee’s nominee. Consequently, because MERS was in possession of the Mortgage at the time appellee filed the complaint and then transferred the Mortgage to appellee, appellee had standing as the real party in interest.

{¶ 47} Due to the merit of appellants’ first issue, their third and fourth issues are moot. They state:

{¶ 48} “Whether Bethany Hood had authority to execute the Assignment on behalf of MERS.”

{¶ 49} “Whether Appellee was precluded from bringing the equitable claim of foreclosure based upon an application of the doctrine of unclean hands.”

{¶ 50} Based on the reasons relating to appellants’ first issue, appellants’ sole assignment of error has merit.

{¶ 51} For the reasons stated above, the trial court’s judgment granting summary judgment is hereby reversed. This matter is remanded to the trial court for further proceedings pursuant to law and consistent with this opinion. Appellee’s motion to strike is overruled.

Vukovich, J. and Waite, P.J., concurs.

MARC D. BEAUMONT, Appellant,
v.
BANK OF NEW YORK MELLON, etc., Appellee.

Todd A. Armbruster of Moskowitz, Mandell, Salim & Simowitz, P.A., Fort Lauderdale, for Appellee.

PER CURIAM.

Marc D. Beaumont appeals a final summary judgment entered by the trial court on a claim to foreclose a residential mortgage and recover on a promissory note executed in connection with the mortgage. We reverse.

The final summary judgment in this case was entered in favor of Novastar Home Mortgage, Inc. (“Novastar”), a nonparty to the suit because of its prior withdrawal from the case. It is fundamental error to enter judgment in favor of a nonparty. Beseau v. Bhalani, 904 So. 2d 641 (Fla. 5th DCA 2005); Rustom v. Sparling, 685 So. 2d 90 (Fla. 4th DCA 1997). The defect, which is jurisdictional, can be raised by this Court sua sponte. Dep’t of Envtl. Prot. v. Garcia, 36 Fla. L. Weekly D1664b (Fla. 3d DCA Aug. 3, 2011).

The judgment would also have to be reversed even if entered in favor of appellee, The Bank of New York Mellon, as Successor Trustee Under Novastar Mortgage Funding Trust 2005-3 (“Mellon”). Mellon sought in the complaint to reestablish the note and recover on it. See § 673.3091, Fla. Stat. (2010). This required Mellon to show it was entitled to enforce the note when it lost the instrument, or that it directly or indirectly acquired ownership from a person who was entitled to enforce the instrument when loss of possession occurred. § 673.3091(1), Fla. Stat.^[1] Mellon failed to prove who lost the note and when it was lost, offered no proof of anyone’s right to enforce the note when it was lost, and produced no evidence of ownership, due to the transfer from Novastar to Mellon.^[2] See Duke v. HSBC Mortg. Servs., LLC, 36 Fla. L. Weekly D2569a (Fla. 4th DCA Nov. 23, 2011). The trial court was also required to address the issue of providing adequate protection to Beaumont against loss that might occur by reason of a claim by another person to enforce the instrument. § 673.3091(2), Fla. Stat. If Mellon has, in fact, found the note, it must produce it prior to judgment. Gee v. U.S. Bank Nat’l Ass’n, 72 So. 3d 211, 212 (Fla. 5th DCA 2011); Perry v. Fairbanks Capital Corp., 888 So. 2d 725, 726 (Fla. 5th DCA 2004); see also Feltus v. U.S. Bank Nat’l Ass’n, 37 Fla. L. Weekly D253a (Fla. 2d DCA Jan. 27, 2012).

Mellon also argues that Beaumont has waived the lack of “standing” to enforce the note because of the failure to assert this as an affirmative defense. Generally, the failure to raise standing as an affirmative defense operates as a waiver. Kissman v. Panizzi, 891 So. 2d 1147, 1150 (Fla. 4th DCA 2005) (holding lack of standing is an affirmative defense that must be raised by defendant and failure to raise it generally results in waiver). Standing involves the right to enforce the note and must exist when suit is filed. See, e.g., McLean v. JP Morgan Chase Bank Nat’l Ass’n, 36 Fla. L. Weekly D2728a (Fla. 4th DCA Dec. 14, 2011); Taylor v. Deutsche Bank Nat’l Trust Co., 44 So. 3d 618 (Fla. 5th DCA 2010). There is no evidence showing that Beaumont was on notice prior to the time his answer was filed that ownership of the note had been transferred from Novastar to Mellon. In fact, the claimed transfer, alleged to have occurred on the day suit was filed, was either concealed by Novastar for more than three years while it continued to pursue the action, or Novastar backdated the assignment it finally produced on July 23, 2010, as justification for substituting Mellon as plaintiff. Under these circumstances, Beaumont may raise lack of standing when suit was filed as a defense. See Boston Hides & Furs, Ltd. v. Sumitomo Bank, Ltd., 870 F. Supp. 1153, 1161 n.6 (D. Mass. 1994) (holding banks were not precluded from raising affirmative defense of fraud for first time on summary judgment in action alleging wrongful dishonor of letter of credit, where banks did not discover information suggesting fraud until almost one year of discovery). Furthermore, Mellon must prove its right to enforce the note as of the time the summary judgment is entered, even if Beaumont had waived the right to challenge the bank’s standing as of the date suit was filed. Venture Holdings & Acquis. Group, LLC v. A.I.M. Funding Group, LLC, 75 So. 3d 773 (Fla. 4th DCA 2011). Its failure to do so would require this Court to reverse the summary judgment entered on the note and mortgage, even if judgment had been entered in favor of Mellon.

REVERSED.

TORPY, PALMER and COHEN, JJ., concur.

[1] A negotiable instrument is enforceable by: (1) the holder of the instrument, (2) a nonholder in possession who has the rights of a holder, or (3) a person not in possession of the instrument who is entitled to reestablish a lost, destroyed or stolen instrument pursuant to section 673.3091, or who has paid or accepted a draft by mistake as described in section 673.4181. § 673.3011, Fla. Stat.

[2] The record contains a copy of an assignment of the note from Novastar to Mellon, but the document was never offered into “evidence,” by being attached to an affidavit for purposes of authentification. As such, it is not competent evidence of the assignment and cannot be considered in ruling on Mellon’s motion. See, e.g., Morrison v. U.S. Bank, N.A., 66 So. 3d 387, 387 (Fla. 5th DCA 2011) (reversing summary judgment of foreclosure where defendant asserted she had not received a notice of default as required by mortgage, and bank had simply filed an unauthenticated notice letter).

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Mortgage Fraud

Bank of America
Bank of New York Mellon
Countrywide Home Loans Servicing
Law Offices of David Stern
Cheryl Samons

Action Date: December 10, 2011
Location: West Palm Beach, FL

In a very unusual move, the FL Supreme Court rejected the settlement in the PINO case last week and will issue a decision about fraudulent mortgage documents.

Florida’s Fourth District Court of Appeals had certified a procedural foreclosure question to the Supreme Court, stating: “This is a question of great public importance” since “many, many mortgage foreclosures appear tainted with suspect documents.”

At the trial court level, PINO’s attorneys had asked the court to sanction BNY Mellon by denying it the equitable right to foreclose the mortgage at all. The district court observed that if this sanction were available after a voluntary dismissal, “it may dramatically affect the mortgage crisis in this state.”

The Fourth District Court of Appeals decision seemed to recognize that very frequently, bank lawyers used dismissals when homeowners raised a question regarding the legitimacy of the documents filed by the banks.

Advocates for homeowners were encouraged by the Supreme Court’s action denying the settlement as the final resolution.

So who exactly is NOT happy?

Perhaps the preparers and signers of the two mortgage assignments in the PINO case.

One of the Assignments was prepared by the Law Offices of David J. Stern, Esq. This is signed by Stern’s office manager, Cheryl Samons who signs as an Asst. Sect. of MERS.

This is dated September 19, 2008 – though not filed until February 18, 2009.

The Lis Pendens (beginning of the foreclosure in judicial states) was dated October 8, 2008.

This is an assignment of the Mortgage and the Note to:

The Bank of New York Mellon F/K/A The Bank of New York as Trustee for the Certificateholders CWALT, Inc. Alternative Loan Trust 2006-OC8.

For anyone unfamiliar with Cheryl Samons many acts in the Law Offices of David Stern (a law firm that spent a lot of $$ entertaining officials from FANNIE), the sworn statements from paralegals and notaries from the investigation of then Asst. A.G.s June Clarkson & Theresa Edwards (those overly aggressive FORMER prosecutors) are available for review at StopForeclosureFraud.com.

According to these sworn statements, Samons signed thousands of documents each week, allowed other people to sign her name, did not read what she signed, signed other names, etc. She did these things because her boss, David Stern, was very generous (see the articles by Andy Kroll in Mother Jones for more details on this).

The second assignment was notarized July 14, 2009 and filed July 29, 2009.

It seems they forgot all about the first assignment because once again it is an assignment from MERS to the same trust. This Assignment was also prepared by the Law Offices of David Stern. (If the first assignment was effective, of course, MERS had nothing to convey).

The signer this time was Melissa Viveros in Tarrant County, TX.

While she signs as a MERS officer, Viveros in many other reported cases appears as an officer of Countrywide Home Loans Servicing, N/K/A BAC Home Loans Servicing.

So, once again, Bank of America (then the parent of BAC Home Loans Servicing) and Bank of New York Mellon have the most to lose in the short run – and in the long run, investors in CWALT and CWABS trusts.

WSJ-

New York’s attorney general sued Bank of New York Mellon Corp. in state court Tuesday, alleging that one of the world’s largest custody banks defrauded pension funds when it improperly charged for currency transactions.

In a civil complaint, New York Attorney General Eric Schneiderman says he is seeking nearly $2 billion—the amount that the bank had generated in profits in the alleged scheme.

The lawsuit is the latest legal threat to hit BNY Mellon over how it processed currency transactions. In August, attorneys general in Virginia and Florida sued the bank in legal claims that also allege improper pricing for currency transactions.

In the complaint, Mr. Schneiderman alleges that the bank fraudulently charged clients for …

[WALL STREET JOURNAL]

Thomson Reuters News & Insight-

When New York attorney general Eric Schneiderman sued Bank of New York Mellon in August, the AG asserted that the Countrywide mortgage-backed securitization trustee had breached its duty to MBS investors. “As trustee, BNYM owed and owes a fiduciary duty of undivided loyalty,” said the AG’s suit, which was filed as a counterclaim in BNY Mellon’s case seeking approval of the proposed $8.5 billion Bank of America settlement with MBS investors. “[BNYM] breached that duty to [investors’] detriment and disadvantage, by failing to notify them of issues regarding the quality of loans underlying their securities.”

But according to BNY Mellon, it had no such duty.

The bank’s lawyers at Mayer Brown and Dechert filed a 14-page brief this week outlining its interpretation of the responsibilities of an MBS securitization trustee. The filing came at the direction of Manhattan federal Judge William Pauley, who’s deciding whether the BofA MBS settlement should be heard in state court, where BNY Mellon filed it, or in federal court, where key objectors to the proposed settlement want it to proceed. Pauley was concerned with the “securities exception” to the Class Action Fairness Act, which could end up guiding his decision on the forum question. For BNY Mellon, however, any discussion of its trustee responsibilities is fraught with danger. It’s already facing the New York AG’s claims, and several other state attorneys general have threatened similar actions. MBS investors, meanwhile, are pushing BNY Mellon (and other securitization trustees) to bring put-back claims, with the implied threat that investors will take action against trustees unless they do.

[Thomson Reuters News & Insight]

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SUPREME COURT OF THE STATE OF NEW YORK

[…]

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION

DOCKET NO. A-4221-09T3

BANK OF NEW YORK AS TRUSTEE FOR
THE CERTIFICATE HOLDERS CWALT
2004 26T1,
Plaintiff-Respondent,

v.

SARAH G. LAKS and EDWARD
EINHORN, her husband,
Defendants-Appellants,
and
PNC BANK, NATIONAL ASSOCIATION,
Defendant.
___________________________________
Submitted May 23, 2011 – Decided August 8, 2011

EXCERPTS:

The defendants in an action to foreclose a residential mortgage appeal from the denial of their motion to vacate the judgment of foreclosure and dismiss the complaint without prejudice. We reverse and remand for entry of an order granting that relief.

[…]

Laks missed her May 2008 payment on the note and every monthly payment thereafter. On August 13, Countrywide Home Loans,3 plaintiff’s loan servicer, sent a notice of intention to foreclose to Laks by certified mail, return receipt requested. The notice of intention recited that Countrywide was acting on behalf of the owner of Laks’s promissory note, without identifying the owner. The notice of intention also warned that if Laks did not pay $21,279.64 to Countrywide within 30 days, then Laks’s noteholder, again not identified, would institute foreclosure proceedings against her. The notice concluded by advising Laks that if she did not agree that default had occurred or if she disputed the amount required to cure her default, she could contact Countrywide at an address and telephone number stated in the notice. Nowhere on the notice was Laks informed that plaintiff was the owner of her promissory note nor was she given plaintiff’s address. Three days before the foreclosure complaint was filed, MERS assigned Laks and Einhorn’s mortgage to plaintiff.

[…]

Thus, compliance with this notice provision is, in effect, a condition the lender must satisfy in order to either “accelerate the maturity of any residential mortgage obligation” or “commence any foreclosure or other legal action to take possession of the residential property which is the subject of the mortgage.” N.J.S.A. 2A:50-56(a). In fact, with narrow exceptions inapplicable here, “[c]ompliance with [N.J.S.A. 2A:50-56] shall be set forth in the pleadings of any legal action” to foreclose a residential mortgage. N.J.S.A. 2A:50- 56(f). The notice of intention must include specific information “state[d] in a manner calculated to make the debtor aware of the situation[.]” N.J.S.A. 2A:50-56(c).5 The information the Legislature has deemed essential to the Act’s purpose includes:

“the particular obligation or real estate security interest”; “the nature of the default claimed”; the debtor’s right to cure the default; what the debtor must do to cure; and the date by which it must be done to avoid the filing of a foreclosure complaint. N.J.S.A. 2A:50-56(c)(1)-(5). The notice also must advise the debtor of the consequences of a failure to cure —specifically, that the lender may take steps to terminate the debtor’s ownership of the property by filing a foreclosure action and that the debtor will be required to pay the lender’s court costs and counsel fees if the debtor does not cure.
N.J.S.A. 2A:50-56(c)(6)-(7). In addition to the foregoing information about rights, responsibilities and consequences, the Legislature has determined that the notice of intention must include three items of information that are best characterized as helpful to a debtor interested in curing default. The first two are advice to seek counsel from an attorney — including references to the New Jersey Bar Association, Lawyer Referral Service and Legal Services — and a list of programs providing assistance for those seeking to cure default. N.J.S.A. 2A:50-56(c)(9)-(10). The third, and the one critical in this case, is “the name and address of the lender and the telephone number of a representative of the lender whom the debtor may contact if the 9 A-4221-09T3 debtor disagrees with the lender’s assertion that a default has occurred or the correctness of the mortgage lender’s calculation of the amount required to cure default.” N.J.S.A. 2A:50- 56(c)(11).

There is no question that the notice of intention mailed to Laks did not provide the name or address of the lender as required by subsection (c)(11). The notice of intention named no entity other than the mortgage servicer, Countrywide.

[…]

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