LSF9 Master Participation Trust v. Sanchez

450 P.3d 413

LSF9 MASTER PARTICIPATION TRUST, Plaintiff-Appellant,

v. Joann SANCHEZ and Frank F. Sanchez, Defendants-Appellees,andWells Fargo Bank, N.A. by Merger With Wells Fargo Financial Bank, and Canvasback Financial Services, LLC, Defendants.

NO. A-1-CA-36014

Court of Appeals of New Mexico.

Filing Date: December 28, 2018

McCarthy & Holthus, LLP, Joshua T. Chappell, Karen Weaver, Albuquerque, NM, for Appellant

Eric Ortiz & Associates, Eric N. Ortiz, Albuquerque, NM, for Appellees

VIGIL, Judge.

{1} Wells Fargo (Bank) appealed from the district court's order dismissing its foreclosure action against Joann and Frank Sanchez (Homeowners) with prejudice. During the pendency of the appeal, and after briefing was completed, Bank filed a motion to substitute LSF9 Master Participation Trust (LSF9) as appellant in the case, which we granted. LSF9 raised no new claims after our order of substitution, and as such, we address the arguments raised by Bank. Bank made two arguments on appeal: (1) the district court erred in dismissing its entire foreclosure claim as barred by the applicable statute of limitations, NMSA 1978, § 37-1-3(A) (2015) ; and (2) the district court abused its discretion in denying Bank leave to amend its complaint to plead the tolling effect on the statute of limitations of Homeowners' three bankruptcy cases. We reverse.

BACKGROUND

{2} The material facts are not in dispute. On October 30, 2007, Homeowners executed a note and mortgage to secure a $203,669.41 loan. The mortgage was secured by real property located in Las Cruces, New Mexico. The note and mortgage provided for periodic payments in the amount of $1,712.55 to be paid on the fourth day of every month beginning on December 4, 2007. The note and mortgage also contained acceleration clauses, providing that in the event of default, Bank "may require [Homeowners] to pay immediately the full amount of [p]rincipal which has not been paid and all the interest that [Homeowners] owe on that amount."

{3} Homeowner defaulted on the loan on October 4, 2008. Bank filed a foreclosure action against Homeowners on October 7, 2009. In this action, Bank asserted that it was exercising its option under the note to accelerate and declare immediately payable and due the full amount of principal and all interest still owed under the note.

{4} On June 21, 2011, during the pendency of the first foreclosure action, Homeowners filed for Chapter 13 bankruptcy, which was dismissed without prejudice on August 18, 2011, for failure to file information. Homeowners filed a second bankruptcy under Chapter 13 on November 17, 2011, which was dismissed for failure to make plan payments on June 15, 2012. During the pendency of the second bankruptcy, Bank voluntarily dismissed the first foreclosure action on March 20, 2012. Homeowners thereafter filed a third bankruptcy under Chapter 7 on August 21, 2012, which resulted in a discharge order entered on January 23, 2013.

{5} On February 22, 2016, Bank filed its second, and the currently operative, foreclosure action against Homeowners stemming from Homeowners' October 4, 2008 default. Bank alleged in the complaint that its claim was for the accelerated unpaid balance and that it had sent Homeowners a notice of default and a demand letter on August 28, 2015, requesting Homeowners cure of the default. Although not specifically alleging Homeowners' three bankruptcy cases, Bank only sought in rem relief in the complaint. However, concurrent with the complaint, Bank filed a notice of bankruptcy discharge and disclaimer of deficiency that referenced Homeowners' successful Chapter 7 bankruptcy and included a copy of the order of discharge as an exhibit.

{6} Homeowners filed a motion to dismiss pursuant to Rule 1-012(B)(1), (6) NMRA.

Homeowners argued that the statute of limitations for a written contract of six years pursuant to Section 37-1-3(A) applied, and because more than six years had elapsed between their default on October 4, 2008, and Bank's filing of the second foreclosure action on February 22, 2016, Bank's foreclosure claim was barred.

{7} Bank responded that pursuant to Welty v. Western Bank of Las Cruces , 1987-NMSC-066, 106 N.M. 126, 740 P.2d 120, new and separate breaches of the note and mortgage occurred between Homeowners' original default on October 4, 2008 and October 7, 2009, when Bank accelerated the loan—and each separate breach of the note and mortgage accrued a new six-year period of limitation for each missed payment. Bank therefore argued that while its claim for some of Homeowners' oldest missed payments may have been barred by Section 37-1-3, the majority of Homeowners' missed payments, including the accelerated balance as of October 7, 2009, fell within the statute of limitations in light of the tolling of the limitations period because of Homeowners' three bankruptcy cases pursuant to 11 U.S.C. § 362 (2012) (stating the circumstances in which the filing of a bankruptcy petition triggers an automatic stay of other proceedings involving the property of a debtor or bankruptcy estate), and NMSA 1978, Section 37-1-12 (1880) (governing the effect of a stay on the computation of statutes of limitations).

{8} After a hearing, the district court dismissed Bank's foreclosure complaint with prejudice. The district court ruled that it would not consider the tolling effect of Homeowners' bankruptcy filings and denied Bank's request to amend its complaint to plead facts concerning Homeowners' bankruptcies and their tolling effect on the limitation period for Bank's foreclosure claim. The district court did not provide reasoning explaining why it would not grant Bank leave to amend its complaint, but apparently agreed with Homeowners' argument that "[t]here has been nothing that prevented [Bank] from filing a motion to amend" between the filing of the complaint and litigation of Homeowners' motion to dismiss, and that "if [Bank] wished to remedy the problem by amending the complaint, they had the opportunity to do that and they failed to do so."

{9} Bank appeals from the order of dismissal with prejudice.

DISCUSSION

I. Standard of Review

{10} "When facts relevant to a statute of limitations issue are not in dispute, the standard of review is whether the district court correctly applied the law to the undisputed facts." Haas Enters. v. Davis , 2003-NMCA-143, ¶ 9, 134 N.M. 675, 82 P.3d 42. "We review questions of law de novo." Id. Further, insofar as our analysis involves statutory interpretation, our review is de novo. See Wolinsky v. N.M. Corr. Dep't , 2018-NMCA-071, ¶ 3, 429 P.3d 991, cert. denied , 2018-NMCERT-–––– (No. S-1-SC-37287, Oct. 26, 2018).

II. Dismissal of Bank's Foreclosure Claim Was Precluded by Section 37-1-3

{11} Bank argues that the district court erred in dismissing its entire foreclosure claim with prejudice as barred by the statute of limitations, Section 37-1-3(A) (providing that "[a]ctions founded upon any bond, promissory note, bill of exchange or other contract in writing shall be brought within six years"). Bank concedes that certain of Homeowners' missed payments due prior to Bank's October 7, 2009 acceleration of the balance remaining under the note may have been barred when Bank filed the second foreclosure action on February 22, 2016. However, Bank asserts that the limitation period had not run on the accelerated balance as of October 7, 2009, considering the import of Welty and the tolling of the limitation period due to Homeowners' three bankruptcy cases and Bank's 2015 demand letter. We agree.

A. Homeowners' Missed Payments Prior to Bank's October 7, 2009 Acceleration

{12} Generally, "[i]n a breach of contract action, the statute of limitations begins to run from the time of the breach." Welty , 1987-NMSC-066, ¶ 8, 106 N.M. 126, 740 P.2d 120. In the context of an installment contract, like the note in this case, see Maffett v. Emmons , 1948-NMSC-012, ¶¶ 1, 6, 52 N.M. 115, 192 P.2d 557 (construing a note promising periodic payments as an installment contract), our Supreme Court held in Welty that

under contract obligations payable by installments, the statute [of limitations defined in Section 37-1-3(A) ] would have begun to run only with respect to each installment when due. The statute would have begun to run with respect to the whole indebtedness only from the date of an exercise of the option to declare the whole indebtedness due.

Welty , 1987-NMSC-066, ¶ 9, 106 N.M. 126, 740 P.2d 120.

{13} Under the foregoing authority, we conclude that the payments due between October 4, 2008 and October 4, 2009, prior to Bank's October 7, 2009 acceleration of the balance due under the note, were barred by the statute of limitations at the time of Bank's filing of the second foreclosure action. Pursuant to the note, which provided that payments were due on the fourth day of every month, the last payment Homeowners failed to make prior to the October 7, 2009 acceleration was the payment scheduled for October 4, 2009. Applying Welty , the limitation period for this missed payment accrued on October 4, 2009, and ran six years later, on October 4, 2015—142 days before Bank filed the second foreclosure action on February 22, 2016. See 1987-NMSC-066, ¶ 9, 106 N.M. 126, 740 P.2d 120. It follows that the statute of limitations for each payment missed by Homeowners prior to the October 4, 2009 payment also ran prior to Bank's filing of the second foreclosure action. Id.

B. Homeowners' Obligation Under the Note After Bank's October 7, 2009 Acceleration

{14} The fundamental dispute in this case concerns the tolling effect of Homeowners' three bankruptcy filings and Bank's 2015 demand letter on the running statute of limitations for Bank's claim for the remaining amount due under the note after Bank's October 7, 2009 acceleration.

{15} Bank argues that mandatory stays on its foreclosure claim were triggered by Homeowners' bankruptcy filings, which tolled the statute of limitations for the periods of time during which those cases...