Pub. 11 2014 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S 8 BNY V. ROMERO: IMPORTANT LESSONS FOR FORECLOSURE PRACTICE IN NEW MEXICO By William R. Keleher, Modrall, Sperling, Roehl, Harris & Sisk NMBA ASSOCIATE MEMBER O n February 13, 2014, the NewMexicoSupremeCourt filed its Opinion in Bank of New York v. Romero, 2014-NMSC-007. The opinion in BNY v. Romero describes a case which started badly and ended terribly. The case grew out of an unnecessary, expensive, poorly documented loan to two small business people living and working in an economically depressed and poverty ridden county in New Mexico. The silver lining to the case, aside from employing a few at- torneys, is that the Supreme Court reviewed and restated some valuable rules that all foreclosure counsel should review before filing their next complaint. It also serves as a very powerful re- minder that lenders must follow their own underwriting poli- cies. In Romero, the failure to follow those policies made a bad situation worse. Put your Ducks in a Row Before Filing Suit The time for client and counsel to “put their ducks in a row” is before filing the complaint. In a foreclosure action, the plaintiff will have to prove that the plaintiff is entitled to enforce the note and mortgage and that the defendant has defaulted on the note and mortgage. The rest, such as the priority of other claims to the property, the amount due on the note and refuting any de- fenses will also be critical, but before even arguing about that, the plaintiff must show it is authorized to enforce the note. The right to enforce any claim is known as “standing.” As the Court pointed out, “the lack of [standing] is a potential juris- dictional defect which may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.” 2014-NMSC-007, 15. In Romero, the Supreme Court found that the plaintiff did not have standing at the time the complaint was filed so the case was dismissed. The plaintiff had spent time and money, gone through discovery, one trial, an ap- peal and then it was told, after all that effort and time, that it did not have authority to file in the first place. If you are the plaintiff, that is what we call a “bad result.” The Court found the plaintiff did not have standing because it could not prove that it was authorized, either as the holder or as the transferee, to enforce the note at the time the case was filed. The most straightforward way to prove standing is to show the Plaintiff is the “holder” of the note. In order to be the “holder”, the Plaintiff must show it has possession of the note and, if it is not the original lender that the note is either indorsed to the Plaintiff, or the note is indorsed in blank. So, to be a holder, the Plaintiff must show it has possession of the original note and, if required, the proper indorsement. See, §55-3-301 NMSA 1978. In Romero, the original note introduced into evidence at trial had two undated indorsements. One was a blank indorsement by the original payee on the note and second was a special in- dorsement by Equity One to JP Morgan Chase. Of course, if the note had only had one blank indorsement, the plaintiff could have prevailed as the holder of the note. The problem, of course, was the special indorsement made to JPMorgan Chase. 2014 NMSC- 007, 26. Apparently, there was no evidence introduced at trial to show that either JP Morgan Chase had transferred the note to the plaintiff or adequately explaining that the indorsement to JP