Bank of N.Y. Mellon v. Phuong T. Luu

448 P.3d 625

The BANK OF NEW YORK MELLON f/k/a The Bank of New York, AS TRUSTEE FOR the CERTIFICATEHOLDERS OF the CWABS, INC., ASSET-BACKED CERTIFICATES, SERIES 2007-9, Plaintiff-Appellee,

v.PHUONG T. LUU, Defendant-Appellant.

No. A-1-CA-36688

Court of Appeals of New Mexico.

Filing Date: June 26, 2019

Rose L. Brand & Associates, P.C., Eraina M. Edwards, Albuquerque, NM, for Appellee.

Cravens Law LLC, Richard H. Cravens, IV, Albuquerque, NM, for Appellant.

M. ZAMORA, Chief Judge.

{1} Defendant Phuong T. Luu appeals from the district court’s judgment on the merits and order for foreclosure sale in favor of Plaintiff The Bank of New York Mellon f/k/a The Bank of New York, as Trustee for the Certificate holders of the CWABS, Inc., Asset-Backed Certificates, Series 2007-9. On appeal, Defendant challenges the district court’s conclusion that Plaintiff had standing to enforce the promissory note. Specifically, Defendant questions the validity of the note’s indorsement, claiming it is fraudulent and therefore ineffective to show that Plaintiff holds the note, and alleges that the district court’s determination to the contrary was unsupported by any evidence. Concluding the district court’s ruling is supported by substantial evidence, we affirm.

BACKGROUND

{2} On May 3, 2007, Defendant executed a promissory note in the principal sum of $160,800, payable to Countrywide Home Loans, Inc. d/b/a America’s Wholesale Lender (Countrywide). Around the same time, and as security for repayment of the debt evidenced by the note, Defendant executed a mortgage in favor of Mortgage Electronic Registration Systems, Inc., as nominee for Countrywide.

{3} Plaintiff is trustee for a trust created on May 1, 2007. According to the evidence introduced at trial, on May 8, 2007, Defendant’s loan was transferred from Countrywide to the Plaintiff trust, which had a cut-off date for receiving loans of June 8, 2007. Defendant’s loan was initially serviced by Bank of America until Specialized Loan Servicing (SLS) took over servicing the loan. SLS records show the original note was delivered to Bank of America on May 8, 2007, and thereafter transferred to counsel for Plaintiff on July 10, 2012.

{4} Defendant became delinquent on payments due under the note, and on October 4, 2012, Plaintiff filed its initial complaint for foreclosure against Defendant.¹ Plaintiff attached a copy of the note as an exhibit to that complaint, which was unindorsed and contained a stamp from LandAmerica Albuquerque Title Company certifying the note as a true and correct copy of the original. On October 22, 2014, that complaint was voluntarily dismissed without prejudice. No rulings regarding standing were made prior to dismissal.

{5} On April 21, 2015, Plaintiff filed a second complaint for foreclosure against Defendant, initiating the case that forms the basis for this appeal. In its complaint, Plaintiff alleged it is the holder of the note and the mortgage and is therefore entitled to enforce the note. Plaintiff further alleged that it was in possession of the original note at the time of filing, and attached a copy of the note to the complaint, as well as an affidavit from Plaintiff’s counsel attesting to possession of the original note. The note attached to the complaint contains a blank indorsement signed by Michele Sjolander, Executive Vice President of Countrywide. The indorsement is undated, and the parties and the district court agree that the indorsement was signed by stamp, rather than by hand. The note attached to the present complaint does not contain the title company’s stamp, as the 2012 copy did.

{6} Defendant filed a motion to dismiss the complaint, arguing Plaintiff lacked standing because the note’s indorsement is invalid. In her motion, Defendant claimed it was "suspicious" that the note attached to Plaintiff’s prior complaint in 2012 was unindorsed, yet the note attached to the present complaint contains an indorsement, and therefore contended that the indorsement in the present case must be a result of fraud. The district court denied Defendant’s motion. Following discovery, Plaintiff moved for summary judgment, which the district court also denied, ruling there was a genuine issue of material fact as to whether Plaintiff had standing because of the dispute over the timing and effectiveness of the note’s indorsement.

{7} The matter proceeded to a bench trial, wherein the original note containing the indorsement was presented and admitted as an exhibit, as were other documents concerning Defendant’s loan. Based on the evidence admitted at trial, which is discussed in more detail below, the district court concluded that Plaintiff had standing to enforce the note and mortgage lien. Rejecting Defendant’s argument that the indorsement was fraudulent, the district court determined the indorsement was properly made. Following a bench trial, the district court concluded that Plaintiff had standing and was thus entitled to enforce the note and foreclose the mortgage. The district court issued an order ruling in favor of Plaintiff and ordering a foreclosure sale.

DISCUSSION

{8} Defendant argues the district court erred in finding that the note was indorsed by Ms. Sjolander of Countrywide prior to April 1, 2009, and in ruling that Plaintiff has standing to bring the action as the real party in interest. Defendant similarly argues that the district court erred in ruling that the original note is indorsed in blank and has been transferred by possession alone. In short, these arguments challenge whether the indorsement was effective to show Plaintiff was the holder of the note at the time the complaint was filed and, thus, whether Plaintiff has standing to enforce the note. We first review whether Plaintiff made a prima facie case of standing and then review Defendant’s challenge to the legitimacy of the indorsement.

Standard of Review

{9} In this case, we review the district court’s conclusion that Plaintiff had standing under a substantial evidence standard of review. See Deutsche Bank Nat’l Tr. Co. v. Johnston, 2016-NMSC-013, ¶ 28, 369 P.3d 1046 ; Bank of New York v. Romero , 2014-NMSC-007, ¶ 18, 320 P.3d 1 ("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."). " ‘Substantial evidence’ means relevant evidence that a reasonable mind could accept as adequate to support a conclusion." Johnston , 2016-NMSC-013, ¶ 28, 369 P.3d 1046 (quoting Romero , 2014-NMSC-007, ¶ 18, 320 P.3d 1 ). In conducting our review, we "resolve all disputed facts and indulge all reasonable inferences in favor of the trial court’s findings." Id. (internal quotation marks and citation omitted).

I. Plaintiff Made a Prima Facie Showing of Standing

{10} A plaintiff seeking to foreclose a mortgage must show standing at the time of filing by demonstrating that it has the right to enforce the mortgage lien and the underlying promissory note. Bank of N.Y. Mellon v. Lopes , 2014-NMCA-097, ¶ 8, 336 P.3d 443. To establish the right to enforce the note, New Mexico’s Uniform Commercial Code (UCC) requires a plaintiff to prove it is either: "(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 instrument[.]" NMSA 1978, § 55-3-301 (1992). A plaintiff may show it is the holder of a note and satisfy the requirements of standing by attaching a note indorsed in blank to its complaint. Johnston , 2016-NMSC-013, ¶ 23, 369 P.3d 1046 ; BAC Home Loans Servicing, LP v. Smith , 2016-NMCA-025, ¶ 11, 366 P.3d 714 ("[U]nder the UCC, possession of a note indorsed in blank ordinarily establishes the right of a third party as the holder of that note.").

{11} Plaintiff demonstrated that it was the holder of the note at the time the present complaint was filed. See NMSA 1978, § 55-1-201(b)(21)(A) (2005) (defining holder of the note 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"). The complaint alleged the note was indorsed in blank and transferred to Plaintiff. A copy of the indorsed note was included as an exhibit to the complaint. In addition, Plaintiff concurrently filed an affidavit of Plaintiff’s counsel attesting to possession of the original note. These facts demonstrate possession of the note indorsed in blank at the time the complaint was filed, and thus Plaintiff made a prima facie showing of standing in accordance with our case law. See Johnston , 2016-NMSC-013, ¶ 25, 369 P.3d 1046 (recognizing that where a party presents a note indorsed in blank with the initial complaint, it is "entitled to a presumption that it could enforce the note at the time of filing and thereby establish standing"). Accordingly, Plaintiff is entitled to a presumption that it has the right to enforce the note. See id . Although we conclude Plaintiff made a prima facie showing of standing, this does not dispose of the matter because Defendant takes issue with the validity of the note’s indorsement. We must therefore determine whether substantial evidence supports the district court’s conclusion as to the legitimacy of the indorsement. See id. ¶¶ 28-32 (reviewing the district court’s conclusions for substantial evidence).

II. Substantial Evidence Exists to Support the District Court’s Conclusion That the Note Was Properly Indorsed

{12} Defendant challenges the legitimacy of the indorsement on the note. Specifically, Defendant argues on appeal that Plaintiff lacks standing to enforce the note because the indorsement on the note is invalid. Defendant bases her argument on the fact that Plaintiff filed a foreclosure complaint against Defendant in 2012 and attached thereto a certified copy of the note that did not contain any...