A recent New Mexico Court of Appeals case reaffirmed the principle that a foreclosing lender must own the note and mortgage at the time the foreclosure complaint is filed. In The Bank of New York Mellon v. Lopes, Docket No. 32,310 (July 22, 2014), the court of appeals reversed the trial court’s decree of foreclosure in favor of the lender and held that the lender did not have standing to bring the foreclosure action. The court of appeals relied heavily on the New Mexico Supreme Court case of Romero v. Bank of New York, 2014-NMSC-007, 320 P.3d 1 (2014), which also held that the lender did not have standing to foreclose because it could not prove that it owned the note and mortgage at the time it instituted the foreclosure proceeding.
In addition to the usual requirements associated with reviewing and evaluating a foreclosure action in the chain of title, please continue to review the foreclosure pleadings very carefully to confirm that the lender owned the note and mortgage when the complaint was filed. In particular, the following guidelines apply:
- Review the foreclosure complaint to confirm that there are allegations or recitations in the complaint itself that state that the lender owns or holds both the note and mortgage and that the originals are in its possession (or if applicable in your district, that the original note has been placed with the court).
- Review the copy of the note that is attached to the foreclosure complaint and ascertain:
a. Whether the foreclosing lender is the payee under the note.
b. If the foreclosing lender is not the payee under the note, confirm (i) that the note is specifically indorsed to the foreclosing lender (i.e., it says "pay to the order of ____ Bank" or "pay to _____ Bank") or (ii) if the note is indorsed in blank (meaning it’s just signed by the indorsing party without specific reference to a named transferee), confirm that the lender is in physical possession of the original indorsed-in-blank note or if your district requires delivery of the original note to the court, please confirm that the note complies with these requirements.  If you cannot confirm either of these requirements, please contact your underwriter for further guidance. Also, if you have any questions about the sufficiency of an indorsement of the note, contact your underwriter.
3. Determine whether the mortgage has been properly assigned to the foreclosing lender. There must be a complete chain of assignment from the original mortgagee to the foreclosing lender.  While we prefer the assignments to be recorded, so long as there are proper assignments in place, the lack of recordation is not a fatal defect. If you have any questions about the sufficiency of an assignment, contact your underwriter.
It is fair to say that the New Mexico appellate courts are scrutinizing foreclosure actions very closely. If the lender does not own the note and is not an assignee of the mortgage when the foreclosure complaint is filed, the foreclosure will be defective. Do not issue a policy based on such a foreclosure without a proper exception such as: "Consequences of an attack on the foreclosure order due to the foreclosing lender not owning the note and being the assignee of the mortgage."
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 In the Lopes case, the court specifically rejected the argument that the assignment of the mortgage by MERS to the lender constituted a sufficient assignment of the note. The court specifically noted that MERS was "merely a nominee" of the lender and as such did not have the authority to assign the note. The court did not address the question of whether it would have been sufficient if the original payee had assigned the mortgage without a specific indorsement or transfer of the note.
 The Lopes court does appear to say that an assignment by MERS of the mortgage (not the note) would be considered sufficient.