HSBC Bank USA, Nat'l Ass'n v. Wiles

468 P.3d 922

HSBC BANK USA, NATIONAL ASSOCIATION AS TRUSTEE FOR WELLS FARGO ASSET SECURITIES CORPORATION, MORTGAGE ASSET-BACK PASS-THROUGH CERTIFICATES SERIES 2007-PA3, Plaintiff-Appellee,

v.David W. WILES, Defendant-Appellant.

No.: A-1-CA-36567

Court of Appeals of New Mexico.

Filing Date: APRIL 2, 2020

Certiorari Denied, June 8, 2020, No. S-1-SC-38290

Snell & Wilmer L.L.P., Gregory J. Marshall, Sandra A. Brown, Albuquerque, NM, for Appellee

Garner Law Firm, N. Ana Garner, Santa Fe, NM, for Appellant

DUFFY, Judge.

{1} This is a residential foreclosure case. Defendant David Wiles appeals the district court's order granting summary judgment in favor of Plaintiff HSBC Bank USA (HSBC), on HSBC's complaint to enforce Defendant's promissory note and foreclose his mortgage. Defendant contends that HSBC had no right to foreclose his mortgage as a result of an unrecorded assignment of mortgage from the original lender, Wells Fargo Bank, N.A. (Wells Fargo), to another entity before Wells Fargo later assigned the same mortgage to HSBC. For the reasons set forth below, we affirm.

BACKGROUND

{2} On January 19, 2007, Defendant executed a promissory note (the Note) in favor of Wells Fargo. The Note is indorsed in blank. It is secured by a mortgage (Mortgage) executed by Defendant on the same day. An assignment of mortgage (Assignment), transferring the Mortgage from Wells Fargo to HSBC, was recorded in Santa Fe County on June 13, 2012.

{3} On August 13, 2012, HSBC filed a complaint for enforcement of the Note and foreclosure of the Mortgage. The Note, Mortgage, and Assignment were attached to HSBC's complaint. The district court denied HSBC's initial motion for summary judgment on the ground that material issues of fact precluded summary judgment.

{4} On May 9, 2016, by agreement of the parties, Defendant inspected his loan file at HSBC's counsel's office. Defendant was allowed to inspect and copy the Note, Mortgage, and Assignment. In the file, Defendant also found an unrecorded assignment of the mortgage (Unrecorded Assignment), dated January 19, 2007—the same date Defendant executed the Note and Mortgage—from Wells Fargo to U.S. Bank, N.A. as trustee. Because HSBC would not allow Defendant to copy that document, Defendant filed a motion to compel production of the Unrecorded Assignment and other documents defense counsel allegedly saw in HSBC's counsel's files. Four days later, HSBC filed a second motion for summary judgment.

{5} The district court granted Defendant's motion to compel in part, ordering the production of the Unrecorded Assignment but declining to compel the production of any additional documents. HSBC produced the Unrecorded Assignment later that day. The court also ordered the parties to submit supplemental briefing on HSBC's second motion for summary judgment discussing the effect, if any, of the Unrecorded Assignment. Defendant, in his supplemental response, argued that the Unrecorded Assignment created a genuine issue of material fact regarding HSBC's ownership of the Mortgage, and further, that if HSBC "cannot prove timely ownership of the mortgage, even though it may be able to prove timely ownership of the Note alone, [HSBC] has an enforceable negotiable instrument but not the right to foreclose on the mortgage. It is left with an unsecured obligation."

{6} After a hearing, the district court granted HSBC's motion in part and denied it in part. The court found HSBC had standing to execute on the Note, that Defendant was in default, and awarded HSBC a money judgment with interest. The court denied HSBC's request for summary foreclosure of the Mortgage, however, because genuine issues of material fact remained concerning the effect, if any, of the Unrecorded Assignment. The district court retained jurisdiction to resolve these questions. The district court also denied Defendant's request for relief for alleged fraud on behalf of HSBC or its counsel.

{7} HSBC moved for reconsideration. Without a hearing, the district court revised its earlier ruling and entered a final order. The district court surveyed the law of New Mexico and other jurisdictions and found that as a general rule: (1) a transfer of a mortgage without the transfer of the corresponding note is a nullity, and (2) without a showing that a party in the chain of title intended to separate the note from the mortgage, the mere existence of an unrecorded document purporting to show a transfer of the mortgage is insufficient to defeat standing to foreclose. Applying these general rules to the case at bar, the district court granted HSBC complete summary judgment as to both the Note and the Mortgage. Defendant appeals.

DISCUSSION

Standard of Review

{8} We review the district court's grant of summary judgment de novo. Encinias v. Whitener Law Firm, P.A. , 2013-NMSC-045, ¶ 6, 310 P.3d 611. "On appeal from the grant of summary judgment, we ordinarily review the whole record in the light most favorable to the party opposing summary judgment to determine if there is any evidence that places a genuine issue of material fact in dispute." City of Albuquerque v. BPLW Architects & Eng'rs, Inc. , 2009-NMCA-081, ¶ 7, 146 N.M. 717, 213 P.3d 1146. "Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law." Self v. United Parcel Serv., Inc. , 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582.

Standing to Enforce the Note

{9} New Mexico's modern foreclosure standing rules were first set forth in Bank of New York v. Romero , 2014-NMSC-007, 320 P.3d 1. Romero established that "[s]tanding is to be determined as of the commencement of [the] suit." Id. ¶ 17 (internal quotation marks and citation omitted). As such, a foreclosing party "must demonstrate that it had the right to enforce the note and the right to foreclose the mortgage at the time the foreclosure suit was filed."

PNC Mortg. v. Romero , 2016-NMCA-064, ¶ 19, 377 P.3d 461, 467 (internal quotation marks and citation omitted); see Romero , 2014-NMSC-007, ¶ 17, 320 P.3d 1 ("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)); id. ¶ 35 (recognizing "the separate functions that note and mortgage contracts perform in foreclosure actions[,]" where "the note is the loan and the mortgage is a pledged security for that loan"). With respect to the promissory note, the foreclosing party must demonstrate that, at the time it filed suit, it "either (1) had physical possession of the ... note indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as required by the UCC." Romero , 2014-NMSC-007, ¶ 19, 320 P.3d 1.

{10} "[T]he holder of a note indorsed in blank may, as a general matter, enforce the note." Deutsche Bank Nat'l Tr. Co. v. Johnston , 2016-NMSC-013, ¶ 25, 369 P.3d 1046 (citing NMSA 1978, §§ 55-3-205(b), -301 (1992)); see Romero , 2014-NMSC-007, ¶ 26, 320 P.3d 1 ("[The] blank indorsement ... established the [b]ank as a holder because the [b]ank [was] in possession of bearer paper[.]"). In this case, HSBC attached a copy of the Note indorsed in blank to its complaint. HSBC therefore established a prima facie case of standing to enforce the Note.

Right to Foreclose the Mortgage

{11} The only disputed issue here is whether HSBC has a right to foreclose the Mortgage. As described above, Defendant found an Unrecorded Assignment of his Mortgage in HSBC's counsel's files that purports to assign the Mortgage from the original lender, Wells Fargo, to U.S. Bank, N.A., as the trustee of a securitized trust. It is notarized and dated January 19, 2007, the same day Defendant executed his Note and Mortgage. There is no evidence the Unrecorded Assignment was ever delivered to U.S. Bank, N.A., or that it was ever recorded. Defendant contends, however, that the Unrecorded Assignment divests HSBC of standing to foreclose the Mortgage, effectively leaving HSBC with the district court's judgment on the Note and no collateral upon which to foreclose.

The Mortgage Follows the Note

{12} The law in New Mexico has long been established: The mortgage follows the note, allowing the subsequent holder of the note to enforce the mortgage even without a formal assignment of the mortgage. In 1913, our Supreme Court held:

The transfer of a negotiable promissory note, by indorsement and delivery merely, where indorsed in blank or payable to bearer, the payment of which is secured by a mortgage or deed of trust, carries with it, in equity, the mortgage or deed of trust securities. The indorsee of the promissory note is entitled to the benefits of such mortgage, whether an assignment of the same is made or not.

Medler v. Childers , 1913-NMSC-015, ¶ 9, 17 N.M. 530, 131 P. 490 (internal quotation marks and citation omitted); see also Simson v. Bilderbeck, Inc. , 1966-NMSC-170, ¶ 13, 76 N.M. 667, 417 P.2d 803 ("It has frequently been held that a mortgage is but an incident to the debt, the payment of which it secures, and its ownership follows the assignment of the debt." (internal quotation marks and citation omitted)); Hayden v. Speakman , 1914-NMSC-077, ¶ 11, 20 N.M. 513, 150 P. 292 (Abbott, J., rehearing) (holding that "the bona fide holder of negotiable paper, transferred to him by indorsement thereon before maturity, and secured by a real estate mortgage, need not record the assignment of the mortgage"); Stearns-Roger Mfg. Co. v. Aztec Gold Min. & Mill Co. , 1908-NMSC-001, ¶ 33, 14 N.M. 300, 93 P. 706 ("[A mortgage] is a mere incident to the debt which it secures, upon which it depends, and which it follows and will pass with an assignment of the debt to the holder.").

{13} We can find no indication that New Mexico regards this principle as archaic, disused, or...