Pub. 13 2016 Issue 2

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 Issue 2 • 2016 17 borrower was in default; therefore, the bank was entitled to a fore- closure judgment on the borrower’s property. The borrower appealed the district court’s ruling. The Court of Appeals reversed the district court’s judgment and remanded the case to the district court with instructions to vacate its foreclosure judgment. The New Mexico Supreme Court agreed to review the case to determine (1) whether standing is jurisdictional inmortgage foreclosure cases; (2) whether the Court of Appeals erred in inter- preting Bank of New York to require a plaintiff who presents an original, indorsed-in-blank promissory note at trial to establish that it is the holder of the note by presenting an indorsement dated prior to the filing of the complaint or by attaching an indorsed copy of the note to the complaint; and (3) whether the Court of Appeals erred by concluding that an assignment of mortgage dated prior to the filing of the complaint cannot by itself establish standing. The Supreme Court in Deutsche Bank clarified its holding in Bank of NewYork regarding standing to bring a foreclosure action: the court held that the right to bring a mortgage foreclosure action is not created by statute (i.e., the UCC). Instead, to have standing, a lender must satisfy the traditional three-prong test for standing, that is, a lender must present an injury that is concrete, particu- larized, and actual or imminent; fairly traceable to the borrower’s challenged behavior; and likely to be redressed by a favorable rul- ing. In addressing standing in Deutsche Bank , the Supreme Court rejected Deutsche Bank’s argument that the borrower waived his right to challenge standing because he acknowledged in his answer that Deutsche Bank owned the note and mortgage through assign- ment from New Century. Under the court’s reasoning, a party may challenge standing at any point in the foreclosure litigation and does not waive that defense if the party fails to raise it at the com- mencement of the case. The court held that compliance with the three-prong test for standing in a foreclosure action requires that a party claiming to be a mortgage holder provide proof that that it was entitled to en- force the underlying note prior to commencement of the action by, for example, attaching a note containing an undated indorsement to the complaint or producing a note dated before the filing of the complaint at some point in the litigation. In this case, Deutsche Bank failed to prove that the note was indorsed in blank prior to the time of filing. As such, the court found that Deutsche Bank could not prove it was entitled to enforce the note at the time it filed its foreclosure lawsuit. Deutsche Bank argued that, under New Mexico’s rules of pro- cedure, all it had to do was allege in its complaint that it was the holder of the note, then later prove the fact through more detailed documentation. The bank argued that the court’s requirement that Deutsche Bank actually have the right to enforce the note added an additional pleading requirement not set forth in the rules. The court disagreed, holding that this is an issue of proof, not of plead- ing, and Deutsche Bank failed to provide proof of its standing in the face of a challenge from the borrower. The court ultimately agreed with the Court of Appeals and re- versed the district court’s decision in favor of Deutsche Bank and affirmed the Court of Appeals’ decision. A Date? The practical implication of this case is that complying with the UCC’s requirements for enforcement of a promissory note may not be sufficient to establish standing in a foreclosure action. A lender should ensure that it holds the original, executed and dated promissory note, made payable to it or indorsed to it or in blank together with the date the note was indorsed. Debbie Ramirez is a Shareholder in the Modrall Sperling Law Firm in Albuquerque and Santa Fe. She represents NewMexico and national lenders throughout the state and may be reached at (505) 848-1800 or debbie.ramirez@modrall.com 1- 2014-NMSC-007 (Feb. 13, 2014). 2- 2016-NMSC-013 (Mar. 3, 2016). In addressing standing in Deutsche Bank, the Supreme Court rejected Deutsche Bank’s argument that the borrower waived his right to challenge standing because he acknowledged in his answer that Deutsche Bank owned the note and mortgage through assignment from New Century. 