It’s gratifying to see that some jurists are still able to be offended by banks who come to court assuming they can foreclose on borrowers based on their say-so. And this New Mexico Supreme Court ruling is also a reminder that even though the servicer versus homeowner war seems to have been settled in favor of servicers, there are still important fronts being contested.
The Supreme Court of New Mexico, in Bank of New York v. Romero, effectively rebuked the trial court by choosing to rule on the issue of standing even though that was not the basis for the appeal and reversing the lower court on its finding of fact that the note had been properly transferred to Bank of New York. Anyone who has dealt with foreclosures will recognize the brazen behavior of the Bank of New York. The Romeros had been talked into a refinance by Equity One which put them into a mortgage which had both higher interest rates and higher monthly payments than their original mortgage but allowed them to get $30,000 in cash. The loan was a no income, no assets loan, and Equity One did no income verification. The Romeros quickly became delinquent.
The foreclosure trials had almost every abuse rolled into one case: two versions of the “original” note presented, with the endorsed one showing Chase, not Bank of New York, as the owner; Bank of New York claiming to represent a trust of a similar name when SEC records showed the Romeros’ loan was in a trust with a similar-sounding name (that was in fact serviced by Chase); a servicer employee testifying that Equity One really, truly intended to transfer the loan to Bank of New York, even though that servicer had nothing to do with the loan until 11 months after the foreclosure was filed; and the usual rigarmorole that none of this mattered anyhow because MERS.
The Romeros made the expected standing arguments and also argued that the loan violated New Mexico’s Home Loan Protection Act, which among other things, makes it impermissible for lenders to make mortgage loans that do not provide a reasonable, tangible net benefit to borrowers.
The court not only ruled in favor of the Romeros, it went out of its way to set some important stakes in the ground. For instance, in dismissing the barmy notion that MERS, which is (at most) a mortgage registry, can transfer notes, the decision stated:
These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.
Similarly, the Supreme Court overruled the appeals court on the business records exception, which had enabled testimony from servicer employees who no personal knowledge of the case to be admitted as evidence. And it went out of its way to opine on the basis of the appeal, the question of whether the HLPA was preempted by Federal law, and if so, whether the loan fell afoul of it (remember, since the court found for the Romeros based on standing, it could have punted on the HLPA). From the decision:
But under the very next provision in the regulation, a lender cannot avoid its own obligation to consider real facts and circumstances that might clarify the inaccuracy of a borrower’s income claim. Id.(“Lenders cannot, however, disregard known facts and circumstances that may place in question the accuracy of information contained in the application.”) A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.
And it also stated that making borrowers sign boilerplate documents averring that they had gotten a benefit was no substitute for the lender assessing the borrower’s situation.
Nathalie Martin at Credit Slips sees this ruling as important for homeowners all over the US:
The opinion spelled out the tough standards banks must meet to have standing to initiate foreclosures, reviewed a whole bunch of alleged “evidence” produced by Bank of NY to establish standing, including plenty of affidavits and testimony from people with no personal knowledge of what was going on. The opinion debunks the use of the business records exception to get in documents no one knows anything about and has some good MERS language too. The opinion on these facts should help homeowners with funky documentation in other states as the principles discussed are universal. As such, the case established strong principles for homeowner protection from unscrupulous lenders.
In some ways the second half of the opinion is even a better read as it establishes that a lender must consider a borrower’s ability to repay a home mortgage loan when it determines whether the loan provides a reasonable, tangible net benefit to borrowers, as required by a state home loan protection act….
The case grew out of the go-go securitized mortgage practices that led to the Great Recession, so hopefully, this decision will be a substantial precedent for the many homeowners facing falsely documented bank foreclosures.
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Thank you for posting this and for reminding your readers that the abuses by servicers, and the banks that allow them to apprpriate their names in order to give the servicers cover for their crimes, is not over. Many families and communities are still being terrorized.
9 million homes have been lost to foreclosure since 2007, and there will be another 9 million before we’re done. Homeowners have lost $8 trillion in home equity (in the last 4 years) and 11 million people are currently underwater on their mortgages. All of this is unprecedented. All of this is the result of fraud.
But, as He-Who-Must-Not-Be-Named….the one who has Favored Banker status said:
“Giving ‘debt relief’ to people that really need it, that’s what foreclosure is. Homeowners are probably better off going somewhere else, because they get relieved almost 100 percent of the debt through foreclosure.” – Jamie Dimon
And this is how that desired result is achieved:
“Low-quality revenue is easy to produce, particularly in financial services. Poorly underwritten loans represent income today and losses tomorrow.” – Jamie Dimon
“It ain’t right, Atticus,” said Jem. “No, son, it ain’t right.” –Harper Lee, To Kill a Mockingbird
Oh I see- stealing soomeones home is an act of CHARITY. Do these DB ever LISTEN to their own psychpathic babble? WTH
Dimon’s comment is not merely tone-deaf, but for those of us who live in full recourse state factually incorrect. Foreclosure does NOTHING to one’s net level of debt when the bank can go after you for THE REST OF THE MONEY.
It’s about damn time. I tend to term the 1% “the owners” as in, GWB’s “ownership society”. It is my view that an underlying theme of the great recession is not merely fraud, but fraud with the aim of disenfranchising the 99, to make us all perpetual renters and debtors – and they are being extremely successful. Even the smallest chink in their armor is to be cheered. Hip, hip, hooray for the Romeros and the Land of Enchantment’s supremes.
So, it only took six years for a State high court to rule that the law means what it says about requiring those seeking to foreclose a mortgage to prove ownership of the note. How many homeowners have been dispossessed in the meantime, and who thinks an opinion of the Supreme Court of New Mexico constitutes authority anywhere else?
For those who do, it isn’t.
Yes, you are right – but perhaps in the Great Hubris of the 1%, they’ll get incensed and take this “obviously flawed” standing case to the US Supreme Court. Not that they’re our friends (e.g. Citizens United), but this issue, whether a party that cannot demonstrate ownership of a note has standing in a default proceeding, seems like a no-brainer to me that even Scalia would have trouble reconciling with the law. I sincerely hope they do challenge this decision.
New Mexico supreme court rulings do have weight. The SC of NM deliberates and reasons at the highest level of a legal trial. Of course it constitutes authority in other places. And how nice.
I would cite it, as I would other cases from other jurisdictions which are along the same lines, as persuasive authority in my home state, which is not New Mexico. While not controlling, the more favorable opinions from State Supreme Courts there are, the easier it is to convince one’s own state court of the correctness of the position. So yes, this case does have value outside of New Mexico.
It’s like getting a sip of water after the interminable trek in the desert. You gotta be careful not to gulp it all down at once. Who knows where the next sip will come from?
@ Yves–and on the opposite end of the spectrum–let’s have a look at the (now) controlling law in the fine state of Georgia. (Don’t worry–You v. JP Morgan Chase is MUCH shorter and no readers will be constrained by an over-abundance of multi-syllabic words and legal terms. And stuff.)
http://scholar.google.com/scholar_case?case=13244998142020637039&q=you+v+jp+morgan+chase&hl=en&as_sdt=4,11
I hope legal scholars will compare Bank of New York v Romero (New Mexico State Supreme Court) to the state of Georgia’s “equivalent” ruling in You v JP Morgan Chase (Georgia State Supreme Court.)
One thing is for sure–criminal banking enterprises from all over the world will be comparing the two rulings. And they’ll be thinking, “Let’s pack! We’re moving to Georgia!!!”
God. As. My. Witness. (As Scarlett O’Hara would say), The seven justices of Georgia’s State Supreme Court (Chief Justice Hugh P. Thompson, Justice P. Harris Hines, Justice Robert Benham, Justice Carol W. Huntstein, Justice Harold D. Melton, Justice David E. Nahmias, and Justice Keith Randall Blackwell) WILL be receiving from me a copy of the New Mexico State Supreme Court Opinion in Bank of New York Mellon v Romero–each with an attached cover letter saying three words: Shame on you.
I am thinking of including a handwritten version of You v JP Morgan Chase scrawled in crayon on 1/2 inch rule children’s handwriting paper. (In which case–I might not actually sign the cover letters!) :-)
I am also thinking of lobbying for a law to officially change Georgia’s nickname from, “The Peach State,” to “The Bubba State,” and to have Georgia’s state motto modified from “Wisdom, Justice, Moderation” to “Money Talks–Wisdom, Justice, Moderation Walks.” Our new State Emblem could be a depiction of the Map of the Trail of Tears.
(By the way, the demarcation of the beginning of the Trail of Tears has always been commemorated at what is now 2998 Shallowford Road, Marietta, Georgia. Although it was considered and treated for decades as hallowed ground, it is now a branch of “First Citizens Bank.” And, no–I am not kidding. Feel free to google street view it.)