A significant part of my mediation practice nowadays involves foreclosure mediation. As I've written elsewhere, some courts on the East and West coasts have taken mortgage lenders to task in recent years. In New Mexico, however, much of the debate about mortgage lending and foreclosure practices has been largely limited to op-ed pieces until now. Finally, New Mexico courts have weighed in on lending practices at least, in a decision that clarifies the issues but may not bode well for home-owners.
In The Bank of New York v. Romero, 2011-NMCA-110 (cert. granted, Oct. 15, 2011, No. 33,224), the Court upheld a lower court's conclusions that a bank did not engage in "flipping" a residential home loan or fail to disclose the actual loan rate in violation the Home Loan Protection Act (HLPA), NMSA 1978, Sec. 58-21A-1 et seq., or violate the Unfair Practices Act (UPA), NMSA 1978, Sec. 57-12-1 et seq., by taking advantage of unsophisticated homeowners and structuring a refinance loan to strip the homeowners of their equity, because the borrowers "receive[d] a reasonable, tangible net benefit." Romero, para. 9.
The homeowners, the Romeros, had inherited the Chimayo property from Joseph Romero's father in the early 1970s, and had owned the property ever since then. In early 2006, they refinances a balance of $176,450.08 for a new loan of $227,240.00 with Equity One, which repaid their existing home loan, as well as about $9,000.00 in credit card and other obligations, and also gave the Romeros $31,164.82 in cash to pay bills and restock their clothing and music store in Espanola, New Mexico.
After the Romeros fell into arrears, the Bank filed foreclosure suit. The homeowners counterclaimed, alleging deceptive loan practices and unfair trade practices, in that Equity One took advantage of the homeowners, who had limited education, and coerced them to incur debt that Equity One knew the Romeros could never afford, and which "clearly stripped" the Romeros "of their entire equity." Id., paras. 4, 15. Additionally, the Romeros had a higher monthly payment; they were required to pay various fees and costs for the re-finance; and overall term of the mortgage was extended. However, against these factors, the lower court weighed a lower interest rate was extended for an additional year; a slightly lower cap on the interest rate; a signed acknowledgement by the Romeros that they received a reasonable, tangible net benefit; and the cash out of over $40,000.00.
The homeowners argued that if the lender had reviewed annual tax returns, it would have seen that Mr. Romero had misunderstood the question concerning income. However, the Court observed inability to pay was only related the "high cost home loan" section of the HLPA, not the home flipping sectino. The Court did not consider the lower court's findings that the loan did not meet the total pins and fees or rate thresholds for a "high cost" home loan under the HLPA, because the homeowners did not object to those findings.
Regarding then question of reasonable,tangible net benefit, the Court also stressed that it must be analyzed at the time the loan offer was accepted, when homeowners obtained money to save their house from foreclosure and also the opportunity to salvage their business.
Also of note, the Court rejected assertions that a Bank did not hold legal or beneficial title to the transferred note solely because "the assignment stamps or endorsements" are not in the Bank's name. The assignment indicated JP Morgan was the holder, but the Court noted it was admitted without objection and that a Litton Loan Servicing senior litigation processor had testified without contradiction that Bank of New York was the note holder.
The Court did not get to the lower court's conclusion that the HLPA was preempted by federal law, because the appeal was decided on substantial evidence grounds. As the reader will likely be aware, many of the arguments raised in this case appear regularly in foreclosure counterclaims. As foreclosure suits clearly are not going away anytime in the near future, and it will be interested to read the State Supreme Court's take on certiori.
In the meantime, if you are interested in mediation services for a foreclosure matter (residential or commercial), please contact Pilar Vaile, P.C. at (505) 247-0802 or info@pilarvailepc.com.
