Bulletin: NM2016004

Date:
July 14, 2016
To:
All New Mexico Issuing Offices
RE:
UNDERWRITING - Update on Insuring Post-Foreclosure: Lender’s Standing to Foreclose

Dear Associates:

The New Mexico Supreme Court has again considered the issue of collateral attacks on foreclosure judgments based on the lender’s lack of standing to foreclose and has reversed course. In Deutsche Bank National Trust Company v. Johnston, 2016-NMSC-013 (March 3, 2016), the New Mexico Supreme Court held that standing to foreclose is not a jurisdictional prerequisite for the foreclosure action. This reverses Bank of New York v. Romero, 2014-NMSC-007 (Feb. 13, 2014) and its progeny on that particular issue.

Under the Romero analysis, if the foreclosing lender did not have standing to bring the action at the time the foreclosure complaint was filed[1] that was a jurisdictional defect that meant the court had no jurisdiction to consider the matter and any judgment from the court under those circumstances would be void. Because this was a matter of the court’s jurisdiction, a challenge to the court’s lack of jurisdiction could be asserted at any time after the conclusion of the action, including a collateral attack by someone other than the original borrower/mortgagor. Phoenix Funding, LLC v. Aurora Loan (MERS), 2015-NMCA-33,211 (Aug. 24, 2015).

In Johnston, the New Mexico Supreme Court reversed itself holding that standing is not jurisdictional in a foreclosure case, though prudential rules of standing nonetheless may apply (meaning that standing is a requirement, but not a jurisdictional requirement). Most importantly, the Supreme Court clarified that the defense of lack of standing must be raised during the pendency of the action, including on appeal, but it cannot be the basis for a collateral attack on the final judgment.

This means that in those cases where lack of standing may have existed, if the defendant did not raise the issue and did not appeal or otherwise challenge the adverse judgment, then the court’s judgment will be safe from a subsequent collateral attack by the borrower/mortgagor or someone else standing in the borrower/mortgagor’s shoes.

New Underwriting Guideline. If, based on your examination of the foreclosure action, you conclude that the lender lacked standing to foreclosure, you may proceed to insure without any further requirements if at least one year has elapsed since the date of the final judgment. If one year has not yet elapsed since the date of the final judgment, please contact your underwriter before proceeding to insure. 

[1] The foreclosing lender (1) must have been in possession of the original note, endorsed in blank or endorsed specifically to the foreclosing lender, and (2) must be the original mortgagee or the proper assignee of mortgagee.    

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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
6.01 Federal Foreclosure Act (Single Family)
Exceptions Manual:
None
Forms:
None