May 01, 2014 – Deutsche Bank National Trust Company, as Trustee for Morgan Stanley ABS Capital 1 Inc. Trust 2006-NC4 v. Beneficial New Mexico Inc. d/b/a Beneficial Mortgage Co.; and the Unknown Spouse of Johnny Lance Johnston, No. 31,503

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

OPINION NUMBER:
FILING DATE: May 1, 2014
NO. 31,508
DEUTSCHE BANK NATIONAL TRUST
COMPANY, AS TRUSTEE FOR MORGAN
STANLEY ABS CAPITAL 1 INC. TRUST
2006-NC4,

Plaintiff-A ppellee,
V.
BENEFICIAL NEW MEXICO INC., d/b/a
BENEFICIAL MORTGAGE CO.; and 'THE
UNKNOWN SPOUSE OF JOHNNY LANCE
JOHNSTON,

Defendants,
JOHNNY LANCE JOHNSTON,

Defendant- Appellant.

APPEAL FROM THE DISTRICT COURT OF DONA ANA COUNTY
Manuel I. Arrieta, District J udge

Holland & Hart LLP
Larry J. Montano
Santa Fe, NM

for Appellee

Jane B. Yohalem
Santa Fe, NM

for Appellant

OPINION
ZAMORA, Judge.
{1} 	Johnny Lance Johnston (Homeowner) appeals a judgment of foreclosure
entered against him and in favor of Deutsche Bank National Trust Company (the
Bank) after a bench trial in the district court. On appeal, Homeowner challenges the
Bank’s standing to foreclose. He also argues against the validity of the loan and
challenges evidentiary rulings by the district court. Because the Bank failed to
establish that it had standing to foreclose when it filed its complaint for foreclosure,
we reverse.
BACKGROUND
{2} 	In 2006, Homeowner refinanced the mortgage on his home through New
Century Mortgage Corporation (New Century). He executed a promissory note made
payable to New Century. The note was secured by a mortgage on Homeowner’s home.
In 2008, Homeowner defaulted on the loan, and in February 2009, the Bank filed a
complaint for foreclosure. Attached to the complaint was an unindorsed copy of
Homeowner’s note made payable to New Century. The complaint asserted that
Homeowner, in 2006, executed a note and mortgage, which were later assigned to the
Bank; that Homeowner had not made any payments since July of 2008; and that the

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Bank was therefore entitled to foreclose upon the property for the remaining balance
of the loan.
{3} 	On August 9, 2010, Homeowner filed a motion to dismiss, arguing in pertinent
part that, because the note attached to the complaint showed New Century to be the
current owner of the mortgage, the Bank failed to show ownership of the note at the
time the Bank’s complaint was filed and that the complaint should be dismissed. The
Bank filed its response on August 31, 2010, two weeks before the scheduled trial. The
Bank attached a copy of an assignment of Homeowner’s mortgage (assignment) to its
response. The assignment reflects that New Century assigned the mortgage to the
Bank on February 7, 2006, a week after the note and mortgage were executed by
Homeowner. However, the assignment was not recorded in the land records office
until December 9, 2009, or nine months after the complaint was filed.
{4} 	The trial commenced on September 16, 2010. At trial the Bank introduced the
original note, indorsed in blank. The Bank did not introduce any evidence to show
when the note was indorsed or when the Bank came to possess the indorsed note.
After one day of trial, due to Homeowner’s medical condition, the trial was continued
to October 5, 2010. On September 21, 2010, during the interim between the first and
second days of the continued trial, Homeowner filed a motion requesting that the
judge permit Lynn E. Szymoniak to testify as an expert regarding his challenge to the

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assignment as a false and fabricated document. Homeowner further requested that the
matter of whether his expert would be allowed to testify be addressed in a hearing at
the beginning of the resumption of trial. On October 5, 2010, before resuming the
bench trial, the district court heard arguments regarding Homeowner’s motion to
allow expert testimony regarding the alleged fraudulent nature of the assignment. The
district court found that Homeowner’s request was untimely and that the proposed
expert testimony was not relevant. Homeowner’s motion was denied. The trial
proceeded and was concluded the same day.
{5} 	After the trial, the district court entered findings of fact and conclusions of law,
which provided that New Century Bank validly assigned its interest to the Bank, that
Homeowner defaulted on the note, and that the Bank was entitled to a foreclosure
judgment. 	The 	district 	court 	entered 	a 	judgment 	of 	foreclosure 	from 	which
Homeowner now appeals.
DISCUSSION
{6} 	On appeal, Homeowner argues: (1) the documentary evidence submitted by the
Bank to establish its standing to enforce the note and to foreclose on the mortgage is
insufficient as a matter of law; (2) the district court abused its discretion in refusing
to allow Homeowner’s expert witness to testify as to the authenticity of the Bank’s
assignment; (3) the Bank violated NMSA 1978, § 58-21A-4(B) (2003, amended 2009)

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of the New Mexico Home Loan Protection Act (HLPA), §§ 58-21-A-1 to -14 (2003,
as amended through 2009); and (4) the Bank perpetrated a fraud on the court by
seeking to summarily foreclose without establishing standing and by relying on a
fraudulent assignment to establish standing. Because we conclude that the Bank did
not have standing to foreclose, we do not address Homeowner’s arguments related to
his proposed expert witness and alleged HLPA violation. We further conclude that
Homeowner did not properly preserve his argument that the Bank perpetrated a fraud
on the court and we decline his request to impose sanctions.
A. 	Standard of Review
{7} 	The determinative issues in this case involve evidentiary challenges to the
district court’s findings of fact and conclusions of law. Specifically, the district court
determined the Bank’s standing as a factual matter, therefore “we apply a substantial
evidence standard of review.” Miller v. Bank of Am., N.A., 2013-NMCA-___, ¶ 11,
___ P.3d ___ (No. 31,463, Dec. 10, 2013). “ ‘Substantial evidence’ means relevant
evidence that a reasonable mind could accept as adequate to support a conclusion.”
Sims v. Sims, 1996-NMSC-078, ¶ 65, 122 N.M. 618, 930 P.2d 153. In reviewing a
substantial evidence claim, “[t]he question is not whether substantial evidence exists
to support the opposite result, but rather whether such evidence supports the result
reached.” Las Cruces Prof’l Fire Fighters v. City of Las Cruces, 1997-NMCA-044,

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¶ 12, 123 N.M. 329, 940 P.2d 177. “[W]e will not reweigh the evidence nor substitute
our judgment for that of the fact finder.” Id. We consider the evidence in the light
most favorable to the prevailing party and disregard any inferences and evidence to
the contrary. Williams v. Williams, 1989-NMCA-072, ¶ 7, 109 N.M. 92, 781 P.2d
1170.
B. 	Deutsche Bank Lacks Standing to Foreclose
{8} 	While this case was pending, our Supreme Court decided Bank of N.Y. v.
Romero, 2014-NMSC-007, 320 P.3d. 1, which sets forth how our courts are to decide
mortgage foreclosure cases. 	Romero 	clarified that standing is a jurisdictional
prerequisite for a cause of action and must be established at the time the complaint is
filed. Id. ¶ 17. In order to establish standing to foreclose, a lender must show that, at
the time it filed its complaint for foreclosure, it had: (1) a right to enforce the note,
which represents the debt, and (2) ownership of the mortgage lien upon the debtor’s
property. See id. (stating that “[t]he Bank of New York . . . was required to
demonstrate under New Mexico’s Uniform Commercial Code (UCC) that it had
standing to bring a foreclosure action at the time it filed suit. . . . [It] had the burden
of establishing timely ownership of the note and the mortgage to support its
entitlement to pursue a foreclosure action.”).

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1. 	The Bank’s Right to Enforce the Note
{9} 	Though the Bank maintains that it was the holder of Homeowner’s note at the
time it filed for foreclosure, it attached a copy of the note to its complaint that was
unindorsed and made payable to New Century. In Romero, our Supreme Court
expressly held that an unindorsed note made payable to a third party does not establish
standing to foreclose. 2014-NMSC-007, ¶¶ 22, 23. (“Possession of an unindorsed note
made payable to a third party does not establish the right of enforcement, just as
finding a lost check made payable to a particular party does not allow the finder to
cash it.”). Therefore, the note initially attached to the Bank’s complaint for foreclosure
was insufficient to establish its right to enforce the note.
{10} 	At trial, twenty months after the complaint for foreclosure was filed, the Bank
produced a note that was significantly different from the one attached to its complaint.
The note produced at trial included a blank undated indorsement. “A blank
indorsement . . . does not identify a person to whom the instrument is payable but
instead makes it payable to anyone who holds it as bearer paper.” Id. ¶ 24. Typically,
the bearer of a note indorsed in blank is the holder of that note. See NMSA 1978,
§ 55-3-104(a)(1), (b), (e) (1992) (defining “negotiable instrument” as including a
“note” made “payable to bearer or to order”); NMSA 1978, § 55-3-301 (1992)
(defining “[p]erson entitled to enforce” a negotiable instrument); see also Romero,

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2014-NMSC-007, ¶ 26 (“[The] blank indorsement . . . established the [b]ank as a
holder because the [b]ank [was] in possession of bearer paper.”). The Bank argues that
its production of the note bearing an undated indorsement in blank at trial was
sufficient to establish its right to enforce the note. We disagree.
{11} 	Romero did not directly address whether an undated indorsement in blank,
produced after the filing of the foreclosure complaint is sufficient to establish
standing. In that case, the Bank of New York attached an unindorsed note to its
complaint and, at trial, admitted a different “original” note that contained two undated
indorsements. 2014-NMSC-007, ¶¶ 10, 16. The first indorsement was blank, and the
second was a special indorsement made payable to JPMorgan Chase. Id. Our Supreme
Court agreed that if the note contained only a blank indorsement, that blank
indorsement would have established the Bank of N.Y. as holder because it would have
been in possession of bearer paper. Id. ¶ 26. However, because the note contained
another restrictive, special indorsement to JPMorgan Chase, and because there was no
evidence to the contrary, JPMorgan Chase was the proper holder of the note. Id.
Because Romero decided the standing issue on the special indorsement it did not reach
the question in this case—does a blank undated indorsement establish the Bank as a
holder of Homeowner’s note absent some evidence of when the note was indorsed or
when the Bank come into possession of the note.

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{12} 	Although no New Mexico cases have addressed this issue, courts in other
jurisdictions have held that a lender seeking to establish its right to enforce a note
must produce the indorsed note with the complaint for foreclosure; if the lender
produces the indorsed note after filing the complaint, the indorsement must be dated
to show that the indorsement was executed prior to the initiation of the foreclosure
suit. See Bank of Am., NA v. Kabba, 2012 OK 23, ¶ 11, 276 P.3d 1006 (concluding
that “[i]t is a fundamental precept of the law to expect a foreclosing party to actually
be in possession of its claimed interest in the note, and to have the proper supporting
documentation in hand when filing suit, showing the history of the note, so that the
defendant is duly apprised of the rights of the plaintiff”); see also Green v. JPMorgan
Chase Bank, N.A., 109 So. 3d 1285, 1288 (Fla. Dist. Ct. App. 2013) (determining that
an original undated note with a blank indorsement only shows the bank had
possession of the note but not that it held the note at the time the foreclosure suit was
filed). We believe these holdings from other jurisdictions are persuasive and adopt
their reasoning here.
{13} 	In this case, the blank indorsement on the note the Bank introduced at trial was
not dated, making it impossible to tell when the indorsement was executed. Therefore,
while the indorsed note was sufficient to show that the Bank was the holder of the
note at the time of trial, it failed to show that the Bank was the holder at the time it

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filed its complaint for foreclosure. We conclude that neither the unindorsed copy of
the note produced with the foreclosure complaint nor the indorsed note produced at
trial were sufficient to show that the Bank held the note when it filed the complaint.
The Bank offers no explanation as to why it produced an unindorsed copy of the note
made payable to New Century instead of the indorsed note if it indeed had possession
of the indorsed note when the complaint was filed. The bottom line is the Bank needed
to show it possessed the proper supporting documentation when it filed the foreclosure
complaint. Kabba, 2012 OK 2013, ¶ 11.
2. 	The Assignment of Mortgage Does Not Transfer the Note
{14} 	The district court in this case relied on the date of the assignment to establish
the timing of the note’s indorsement. New Century Mortgage Corporation validly
assigned their interest in the Mortgage and endorsed the Note to Plaintiff, as
evidenced by the Assignment of Mortgage endorsed February 7, 2006, and recorded
in the Records of Dona Ana County at Reception No. 0933345 on December 9, 2009,
in addition to the court’s review of the original Note. However, an assignment of
mortgage is separate from the note and does not by itself transfer ownership of the
note. 	See 	Romero, 	2014-NMSC-007, 	¶¶ 	35-36 	(“These 	separate 	contractual
functions—where the note is the loan and the mortgage is a pledged security for that
loan—cannot be ignored . . . [a]ccordingly . . . the [Mortgage Electronic Registration

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System] assignment [does not] establish the Bank of New York as a nonholder in
possession with the rights of a holder by transfer.”). Even a valid mortgage assignment
without proof of ownership of the note cannot establish standing to foreclose. See id.
¶ 17 (“The [b]ank . . . had the burden of establishing [both] timely ownership of the
note and the mortgage to support its entitlement to pursue a foreclosure action.”
(emphasis added)). Thus, the Bank’s assignment in this case has no bearing on the
validity or the timing of the note’s indorsement.
{15} 	In summary, the Bank’s documentary evidence (the unindorsed note, the
undated indorsed note, and the assignment) was insufficient to establish that the Bank
was the holder of the note when it filed for foreclosure. We conclude that the Bank did
not have standing to foreclose and, as a result, the evidentiary issues and the HLPA
violation issue are moot. See Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734,
31 P.3d 1008 (“[T]he lack of [standing] is a potential jurisdictional defect[.]” (internal
quotation marks and citation omitted)); see also Romero, 2014-NMSC-007, ¶ 39 (“As
a result of our holding that the [b]ank . . . has not established standing to bring a
foreclosure action, the issue of HLPA violation is now moot in this case.”).
C. 	Fraud Argument Not Preserved
{16} 	Lastly, we address Homeowner’s remaining argument. He asserts that the Bank
committed fraud on the court by filing its foreclosure complaint with documents that

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failed to establish the Bank’s standing to foreclose and that the Bank’s conduct should
be sanctioned. However, “[t]o preserve an issue for review on appeal, it must appear
that appellant fairly invoked a ruling of the [district] court on the same grounds argued
in the appellate court.” Woolwine v. Furr’s, Inc., 1987-NMCA-133, ¶ 20, 106 N.M.
492, 745 P.2d 717. “[O]n appeal, the party must specifically point out where, in the
record, the party invoked the court’s ruling on the issue. Absent that citation to the
record or any obvious preservation, we will not consider the issue.” 	Crutchfield v.
N.M. Dep’t of Taxation & Revenue, 2005-NMCA-022, ¶ 14, 137 N.M. 26, 106 P.3d
1273; see also In re Norwest Bank of N.M., N.A., 2003-NMCA-128, ¶ 30, 134 N.M.
516, 80 P.3d 98 (stating that this Court will not search the record for evidence of
preservation). Because Homeowner does not point out where, in the record, he raised
this sanction issue below and whether it was considered by the district court, we
decline to address his arguments regarding fraud on the court and sanctions here. To
the extent Homeowner asks us to consider and impose sanctions in the exercise of our
own inherent authority, we decline to do so for two reasons. First, the request requires
an inquiry into factual circumstances and we are not a fact-finding entity. Second, we
have not observed sanctionable conduct in the proceedings before us.
{17} 	Our Supreme Court has established that lenders seeking to foreclose in New
Mexico must have standing to foreclose at the time the complaint is filed. Romero,

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2014-NMSC-007, ¶ 17. Therefore, before filing a complaint for foreclosure, a lender
is on notice that it must be able to show, through properly indorsed and dated
documentation, that it is the owner of both the note and the mortgage on the date of
filing a foreclosure action. Accordingly, we hold that the Bank’s possession of an
undated unindorsed note without evidence of when the Bank obtained possession,
does not establish the Bank as the holder of the note at the time the foreclosure suit
was filed.
CONCLUSION
{18} 	For the foregoing reasons, we reverse and remand this matter to the district
court with instructions to vacate its judgment of foreclosure. We need not address
Homeowner’s arguments related to evidentiary matters and HLPA.
{19} 	IT IS SO ORDERED.
_______________________________
M. MONICA ZAMORA, Judge
WE CONCUR:
__________________________________
MICHAEL D. BUSTAMANTE, Judge

LINDA M. VANZI, Judge
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