November 7, 2022- Wells Fargo Bank N.A. v. David Graham, No. A-1-CA-38144

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
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Opinion Number:
Court of Appeals of New Mexico Filed 11/7/2022 11:08 AM
Filing Date: November 7, 2022
No. A-1-CA-38144
Mark Reynolds
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WELLS FARGO BANK N.A., as Trustee for the Certificateholders of Banc of America Alternative Loan Trust 2003-8, Mortgage Pass-Through Certificates, Series 2003-8,
Plaintiff-Appellee,
V.
DAVID GRAHAM,
Defendant-Appellant,
and DARLENE E. GURULE and PHOENIX MECHANICAL, L.L.C.,
Defendants.
APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY Emilio J. Chavez, District Judge
McCarthy & Holthus, LLP Jason Bousliman Albuquerque, NM
for Appellee
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Law Offices of Brian A. Thomas, P.C.
Brian A. Thomas
Albuquerque, NM

for Appellant

OPINION	1
WRAY, Judge.	2
{1} 	Defendant David Graham appeals the district court’s grant of summary	3
judgment in favor of Plaintiff Wells Fargo Bank, N.A. (the Bank) in this foreclosure	4
action, relating to a mortgage (the 2003 Loan) taken out on property Defendant owns	5
in Taos, New Mexico (the Property). Defendant contends that the 2003 Loan violates	6
public policy and additionally that certain payments were not properly credited. We	7
affirm.	8
BACKGROUND	9
{2} 	Defendant first purchased the Property and obtained a mortgage in 1993. In	10
1999, he effectively refinanced the 1993 mortgage with a line of credit from Centinel	11
Bank of Taos. The line of credit was modified and renewed in both 2000 and 2001.	12
In late December 2002, Defendant applied for and received a “no document loan.”	13
According to his affidavit, Defendant applied for the “no document” loan to avoid	14
having the lender verify his ability to repay the loan; instead, approval depended on	15
whether his “equity and [his] credit score met the guidelines.” Defendant used part	16
of this loan to repay Centinel Bank of Taos, and “a substantial balance” of the	17
remaining proceeds “was paid directly to [Defendant] in cash and was used to pay	18
ongoing [business] operating expenses as well as to service [Defendant’s] debt.”	19
Between June and August 2003, Defendant obtained the 2003 Loan, which is the	20

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loan at issue in this case. The 2003 Loan was a second “no document” loan, and	1
Defendant used the $294,000 to pay off the loan he had received six months prior.	2
{3} 	In October 2014, the Bank filed a complaint for foreclosure and alleged that	3
Defendant had defaulted on the 2003 Loan. The Bank moved for summary judgment,	4
which the district court granted. Defendant appeals.	5
DISCUSSION	6
{4} 	Defendant argues that (1) the district court improperly granted summary	7
judgment because the 2003 Loan is unenforceable as a matter of public policy based	8
on statutory and equitable grounds; and (2) the district court incorrectly refused to	9
credit a 2011 payment. We address each issue in turn.	10
I. 	The Enforceability of the 2003 Loan	11
{5} 	Defendant argues that the 2003 Loan is unenforceable based on statutory	12
policy statements and the Bank’s unclean hands. The district court ruled that	13
Defendant failed to legally or factually support these claims and granted summary	14
judgment in favor of the Bank. “Summary judgment is appropriate where there are	15
no genuine issues of material fact and the movant is entitled to judgment as a matter	16
of law.” Bank of N.Y. Mellon v. Lopes, 2014-NMCA-097, ¶ 6, 336 P.3d 443 (internal	17
quotation marks and citation omitted). For both arguments, Defendant contends that	18
disputed 	facts 	should 	have 	prevented 	summary 	judgment, 	but 	ultimately	19
acknowledges that the statutory policy argument turns on the existence of a public	20

3
policy—a question of law—and the unclean hands argument relies on unrebutted	1
facts. Absent disputes of fact, we review de novo the grant of summary judgment.	2
See City of Albuquerque v. BPLW Architects & Eng’rs, Inc., 2009-NMCA-081, ¶ 7,	3
146 N.M. 717, 213 P.3d 1146 (observing that if the facts are undisputed, “and an	4
appeal presents only a question of law, we apply de novo review”); State Pub. Educ.	5
Dep’t v. Zuni Pub. Sch. Dist., 2018-NMSC-029, ¶¶ 16-17, 458 P.3d 362 (reviewing	6
de novo summary judgment, questions of law, and statutory construction).	7
{6} 	We first consider the Home Loan Protection Act (HLPA), NMSA 1978, §§	8
58-21A-1 to -14 (2003, as amended through 2021),1 and second turn to the doctrine	9
of unclean hands.	10
A. 	The HLPA and New Mexico Public Policy	11
{7} 	Defendant maintains that he has a complete defense to foreclosure of the 2003	12
Loan because the Legislature’s findings set forth in the HLPA established a public	13
policy that the 2003 Loan violated and the 2003 Loan is therefore unenforceable.	14
Generally, agreements are not void for public policy reasons “unless they are clearly	15
contrary to what the [L]egislature or judicial decision has declared to be the public	16
policy.” Berlangieri v. Running Elk Corp., 2002-NMCA-060, ¶ 11, 132 N.M. 332,	17
48 P.3d 70 (internal quotation marks and citation omitted). To evaluate whether an	18
1 Even though the HPLA has been amended through 2021, in this opinion, we
refer to the 2003 version of the HLPA, unless otherwise noted, because that is the
version of the statute in effect at the time the 2003 Loan originated.

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agreement is void for public policy, we consider whether the Legislature has	1
declared a public policy, and if so, whether the 2003 Loan is clearly contrary to that	2
public policy. See DiGesu v. Weingardt, 1978-NMSC-017, ¶ 7, 91 N.M. 441, 575	3
P.2d 950 (“Contracts in violation of the public policy of the state cannot be	4
enforced.”). Because we conclude that the Legislature did not intend for the HLPA’s	5
findings to apply to the 2003 Loan, we do not continue to consider further whether	6
the terms of the 2003 Loan are clearly contrary to any policy set forth in the HLPA	7
findings.	8
{8} 	In 2003, our Legislature adopted the HLPA. Bank of N.Y. v. Romero, 2014-	9
NMSC-007, ¶ 41, 320 P.3d 1. The HLPA includes, in relevant part, the following	10
specific Legislative findings:	11
A. abusive mortgage lending has become an increasing problem	12
in New Mexico, exacerbating the loss of equity in homes and causing	13
the number of foreclosures to increase in recent years;	14
B. one of the most common forms of abusive lending is the	15
making of loans that are equity-based, rather than income-based.	16
Section 58-21A-2(A), (B). Relying on Section 58-21A-2(A) and (B), Defendant	17
contends, in part, that the HLPA establishes New Mexico’s “explicit public policy,”	18
which he argues forms a defense to foreclosure of the 2003 Loan. The HLPA,	19
however, did not bring every loan within its purview. When passing the HLPA, the	20
Legislature, in Chapter 436, Section 19 of the New Mexico Laws of 2003, stated,	21

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A. Except as provided in Subsection B of this section, the [HLPA]	1
shall apply to all home loans made or entered into after January 1, 2004.	2
B. The effective date of the provisions of Section 10[2] of this act	3
is July 1, 2003 and, on or after that date, no county or municipality shall	4
enact or enforce any ordinance, resolution or rule regarding home loans	5
that 	are 	subject 	to 	the 	[HLPA] 	or 	that, 	except 	for 	the 	delayed	6
applicability date of Subsection A of this section, would otherwise be	7
subject to that act.	8
Subsequently, the official annotations for Section 58-21A-2 set forth the following:	9
Effective dates. — Laws 2003, ch. 436 contains no effective date	10
provision, but, pursuant to N.M. Const., art. IV, § 23, is effective June	11
20, 2003, 90 days after adjournment of the [L]egislature.	12
Applicability. — Laws 2003, ch. 436, § 19A makes the [HLPA]	13
applicable to all home loans made or entered into after January 1, 2004.	14
Section 58-21A-2 annot. Citing the “Effective dates,” Defendant maintains that the	15
legislative findings are policies set forth in the HLPA that were in effect at the time	16
the 2003 Loan originated. The Bank, however, argues that the Legislature did not	17
intend for the 2003 Loan to be subject to the HLPA. We agree with the Bank. While	18
the HLPA states a June 20, 2003 effective date, the Legislature used the applicability	19
date to clarify the class of home loans to which the HLPA applies—thus explicitly	20
narrowing the class to loans that were made or entered into after January 1, 2004.	21
The 2003 Loan originated on July 29, 2003, before the January 1, 2004 applicability	22
date for the category of loans that the Legislature made subject to the HLPA. The	23
2Section 10 refers to Section 58-21A-10, the HLPA provision addressing the
preemption of conflicting county or municipal ordinances.

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2003 Loan is therefore not subject to the HLPA. We remain unpersuaded by	1
Defendant’s arguments to the contrary and explain.	2
{9} 	Defendant constructs the case for the application of the HLPA’s public policy	3
as follows. According to Defendant, the different “Effective” and “Applicable” dates	4
render the HLPA ambiguous. While the Legislature affirmatively stated that the	5
HLPA “shall apply to all home loans made or entered into after January 1, 2004,”	6
2003 N.M. Laws, ch. 436, § 19(A) (emphasis added), and Defendant acknowledges	7
as much, he nevertheless maintains that the Legislature did not “declare the inverse,	8
that it does not apply to earlier-made loans and in what context.” Defendant next	9
argues that to follow the Legislature’s direction to liberally construe the HLPA “to	10
carry out its purpose,” see § 58-21A-14, this Court should liberally construe the	11
HLPA in a manner “that is most consonant with the legislative purpose and the	12
general protections[] of the statute.” Defendant additionally contends that the	13
Legislature would not have delayed the implementation of the HLPA’s policies to	14
remediate abusive lending, because the HLPA’s public policy arose out of the	15
earlier-enacted Unfair Practices Act (UPA), NMSA 1978, §§ 57-12-1 to -26 (1967,	16
as amended through 2019). To summarize, Defendant asserts that “[t]o conclude that	17
the Legislature intended the opposite of its declared public policy[] for all loans prior	18
to January 1, 2004, and then to diametrically reverse its policy on January 1, 2004,	19
defies logic” and would permit prohibited “subterfuge.”	20

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{10} 	Defendant’s construction of the HLPA fails to consider the statute as a whole.	1
See Brenneman v. Bd. of Regents of Univ. of N.M., 2004-NMCA-003, ¶ 10, 135 N.M.	2
68, 84 P.3d 685 (construing a statute as a whole). Defendant insists that because the	3
HLPA was effective when the 2003 Loan originated, the policies expressed therein	4
must apply to the 2003 Loan in order to accomplish the Legislature’s intent. This	5
view, however, is blind to the full scope of the Legislature’s intent when enacted the	6
HLPA. The Legislature pragmatically implemented the HLPA to provide clarity for	7
which loans would be subject to the statute and give lenders time to adjust their	8
practices and in this manner, was able to address the policy problem of the	9
increasingly abusive lending environment while also limiting the class of loans that	10
would be subject to the HLPA and creating a specific remedy. See § 58-21A-2	11
(policy); § 58-21A-4 (prohibited practices); § 58-21A-5 (more prohibited practices);	12
§ 58-21A-9 (civil action). The applicable date, rather than creating an ambiguity,	13
narrows the class of loans subject to the HLPA. See Cabazos v. Calloway Constr.,	14
1994-NMCA-091, ¶ 7, 118 N.M. 198, 879 P.2d 1217 (noting that, “if a statute is not	15
ambiguous, there is no reason to resort to principles of construction or considerations	16
of policy”). The 2003 Loan originated before January 1, 2004, and as a result, the	17
2003 Loan is not subject to the legislative findings set forth in the HLPA.	18
{11} 	The Legislature anticipated that some loans would not be subject to the HLPA.	19
In establishing a separate effective date for Section 58-21A-10 of the HLPA, the	20

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preemption provision, the Legislature noted that some loans would be “subject to	1
the [HLPA]” and that some loans would otherwise be subject to the HLPA “except	2
for the delayed applicability date.” 2003 N.M. Laws, ch. 436, § 19(B). The 2003	3
Loan was a loan that would otherwise be subject to the HLPA, “except for the	4
delayed applicability date.” See id.	5
{12} 	In relation to those loans that are subject to the HLPA, the Legislature	6
expressed a new public policy related to specified abusive lending practices, contrary	7
to Defendant’s argument that the HLPA simply expanded UPA policies. The HLPA	8
expresses the Legislature’s finding that “abusive mortgage lending has become an	9
increasing problem in New Mexico,” Section 58-21A-2(A) (emphases added), and	10
our Supreme Court explained that the “Legislature passed the HLPA in 2003 to	11
combat abusive home mortgage procurement practices.” Romero, 2014-NMSC-007,	12
¶ 41. The UPA, however, broadly addresses “unconscionable and unfair or deceptive	13
trade practices.” State ex rel. Stratton v. Gurley Motor Co., 1987-NMCA-063, ¶ 8,	14
105 N.M. 803, 737 P.2d 1180. While the HLPA explicitly establishes that violations	15
of the HLPA also constitute UPA violations, see § 58-21A-12, we are unpersuaded	16
that “[t]he public policy expressed in [the] HLPA was supplementary” to the UPA,	17
as Defendant argues.	18
{13} 	For these reasons, we conclude that the 2003 Loan was not in the class of	19
loans the Legislature intended to be subject to the HLPA. We reject the notion that	20

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the HLPA’s legislative findings could form the basis to void an agreement when the	1
agreement was not subject to the HLPA. Because we discern no other applicable	2
public policy, we do not further consider Defendant’s arguments that the HLPA	3
provides a defense to enforcing the 2003 Loan.	4
B. 	Unclean Hands	5
{14} 	Defendant additionally argues that the 2003 Loan is unenforceable based on	6
the equitable doctrine of unclean hands and that the unclean hands claim was based	7
on asserted facts that the Bank had failed to rebut. “The question of whether, on a	8
particular set of facts, the district court is permitted to exercise its equitable powers	9
is a question of law, while the issue of how the district court uses its equitable powers	10
to provide an appropriate remedy is reviewed only for abuse of discretion.” Romero	11
v. Bank of Sw., 2003-NMCA-124, ¶ 28, 135 N.M. 1, 83 P.3d 288 (internal quotation	12
marks and citation omitted). Under the doctrine of unclean hands, a complainant	13
may not recover “where he or she has been guilty of fraudulent, illegal or inequitable	14
conduct in the matter with relation to which he or she seeks relief.” Randles v.	15
Hanson, 2011-NMCA-059, ¶ 21, 150 N.M. 362, 258 P.3d 1154 (alteration, internal	16
quotation marks, and citation omitted). Specifically, the doctrine applies “in	17
circumstances where the complainant has dirtied his or her hands in acquiring the	18
right he or she now asserts.” Id. (alterations, internal quotation marks, and citation	19
omitted). Defendant maintains that the Bank dirtied its hands by approving an	20

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equity-based loan with no investigation into Defendant’s assets and ability to pay,	1
and therefore, the 2003 Loan is unenforceable. Under the circumstances of this case,	2
we cannot conclude the district court abused its discretion in rejecting Defendant’s	3
unclean hands argument.3
4
{15} 	The undisputed facts before the district court created no material issue of fact	5
to support equitable relief based on “fraudulent, illegal or inequitable conduct” by	6
the Bank in originating the 2003 Loan. See id. (internal quotation marks and citation	7
omitted). To the contrary, Defendant’s testimony demonstrates that he understood	8
the terms of the loan and purposefully sought the loan because its equity-based terms	9
were the only terms available to him in his situation. In his affidavit in response to	10
Plaintiff’s motion for summary judgment, Defendant testified that in 2002, he was	11
advised “due to the sporadic nature of my income and because my debt-to-income	12
ratio fell outside of the recommended guidelines, I would not likely qualify for a	13
mortgage loan using traditional underwriting criteria.” Defendant also testified that	14
he was told about a “no document loan” that “was available to self-employed people	15
like [him], who were unable to document a steady net income sufficient to repay the	16
loan after servicing other existing debt.” Defendant understood that “the loan would	17
be approved if [his] equity and . . . credit score met the guidelines” and further that	18
3 We assume without deciding that the doctrine of unclean hands can be
applied in a situation in which the right to be enforced was secured by one party and
later assigned to another.

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“this ‘no document’ loan process was the only option [he] had to get a long-term	1
loan and mortgage approved at that time. By using this method, the bank would	2
never directly evaluate whether [he] had the financial ability to repay the loan.” With	3
this understanding, on the 2003 Loan application, Defendant reported his high	4
business income, low personal expenses, and high net worth, as well as ownership	5
of several properties and high-dollar assets. Later, however, in his affidavit,	6
Defendant explained that the 2003 Loan application was not an accurate picture of	7
his debt-to-income ratio, having omitted his business expenses and some additional	8
debt. Defendant’s evidence does not support fraudulent, inequitable, or illegal	9
conduct by the Bank.	10
{16} 	The undisputed evidence demonstrates that terms of the 2003 Loan were not	11
concealed and Defendant was not misled. Defendant understood those terms, and he	12
purposefully selected those terms in order to obtain the financing he desired. See	13
Wyrsch v. Milke, 1978-NMCA-085, ¶ 32, 92 N.M. 217, 585 P.2d 1098 (“He who	14
seeks equity must do equity.” (internal quotation marks and citation omitted)). Under	15
these 	circumstances, 	the 	district 	court 	did 	not 	abuse 	its 	discretion 	to 	reject	16
Defendant’s equitable defense and grant summary judgment to the Bank.	17
II. 	The Partial Payment	18
{17} 	Last, Defendant contends that the district court improperly failed to credit a	19
payment submitted by Defendant to the Bank on September 1, 2011. The Bank	20

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asserts that Defendant failed to preserve or waived this argument, the 2011 payment	1
was made after default, and the Bank was not obligated to accept it. In reply,	2
Defendant maintains that the 2011 payment was rejected well before March 1, 2014,	3
“the effective date of default.” We conclude that Defendant preserved and did not	4
waive the issue but did not “tender” a payment in September 2011.	5
{18} 	Regarding preservation, an issue is preserved for our review if “a ruling or	6
decision by the trial court was fairly invoked.” Rule 12-321(A) NMRA. The Bank	7
does not dispute that Defendant raised the question in the district court in response	8
to summary judgment. Accordingly, the issue was preserved. The Bank additionally	9
argues that under Rule 1-008 NMRA, Defendant waived the issue by failing “to	10
plead partial tender” as an affirmative defense in a responsive pleading. Rule 1-	11
008(C) requires a party to plead affirmative defenses, including “accord and	12
satisfaction, 	arbitration 	and 	award, 	contributory 	negligence, 	discharge 	in	13
bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, laches,	14
license, payment, release, res judicata, statute of frauds, statute of limitations, waiver	15
and any other matter constituting an avoidance or affirmative defense.” The Bank	16
does not explain which of these defenses “partial tender” invokes or otherwise how	17
Rule 1-008 applies to the argument Defendant made. We therefore consider the	18
Bank’s waiver argument no further and turn to the merits of Defendant’s tender	19
argument.	20

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{19} 	Defendant appears to concede that the 2011 payment was a partial payment.	1
The record appears to support this concession. Payment records show that payment	2
for August 2011 was not made until October 2011. The September 2011 payment	3
was for a single month, but an outstanding balance existed at that time, resulting in	4
an additional required payment to bring the account current. This discrepancy	5
explains 	the 	Bank’s 	communication 	dated 	September 	27, 	2011, 	stating 	that	6
“[b]ecause the payment we received was less than the total amount required for the	7
payment, we are returning this check to you.”	8
{20} 	Defendant argues that the district court’s failure to credit the September 2011	9
payment resulted in “an erroneous application of the Uniform Commercial Code”	10
(UCC). Specifically, Defendant contends that he “tendered” the funds in September	11
2011, and regardless of whether the Bank rejected the “tender,” the UCC required	12
the Bank to discharge the tendered portion of the debt, reduce the balance of the	13
debt, and stop accrual of interest on the debt. Defendant contends that because the	14
UCC does not require a tender to be “in the full amount of the debt,” the Bank could	15
not 	reject 	the 	September 	2011 	payment 	without 	consequence. 	According 	to	16
Defendant, 	the 	failure 	to 	credit 	a 	partial 	payment 	amounts 	to 	a 	prohibited	17
prepayment penalty. The Bank responds that the UCC permits parties to “override”	18
UCC provisions by agreement and that under the 2003 Loan agreement, the Bank	19
was permitted to reject partial payments. We agree with the Bank.	20

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{21} 	The UCC directs that “[t]he parties, by agreement, may determine the	1
standards by which the performance of those obligations is to be measured if those	2
standards are not manifestly unreasonable.” NMSA 1978, § 55-1-302(b) (2005).4
3
The note in the present case identifies the amount of the monthly payment and states	4
that the borrower would be in default if he did not pay “the full amount of each	5
monthly payment on the date it is due.” The mortgage permits the Bank to “return	6
any 	payment 	or 	partial 	payment 	if the 	payment 	or 	partial 	payments 	[were]	7
insufficient to bring the [l]oan current.” A tender, according to Defendant, “is an	8
offer to perform coupled with the present ability of immediate performance, so that	9
the obligation could be satisfied but for the other party’s refusal to cooperate.” Miller	10
v. Johnson, 1998-NMCA-059, ¶ 21, 125 N.M. 175, 958 P.2d 745. According to the	11
parties’ agreement, the 2011 partial payment was not a tender, because even if the	12
Bank had accepted the payment, it would not have satisfied Defendant’s obligation	13
for the month—the loan would not have been brought current. The 2011 partial	14
4The parties cite the current version of the statute, which includes essentially
the same language as the statute in effect at the time the 2003 Loan originated. See
NMSA 1978, § 55-1-102(3) (1961) (“The effect of provisions of this act may be
varied by agreement, except as otherwise provided in this act and except that the
obligations of good faith, diligence, reasonableness and care prescribed by this act
may not be disclaimed by agreement but the parties may by agreement determine
the standards by which the performance of such obligations is to be measured if such
standards are not manifestly unreasonable.”).

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payment was therefore not a tender, and Defendant was not entitled to credit for the	1
payment.	2
CONCLUSION	3
{22} 	For the reasons stated herein, we affirm.	4
{23} 	IT IS SO ORDERED.	5
_________________________________	6
KATHERINE A. WRAY, Judge	7
WE CONCUR:	8
_________________________________	9
ZACHARY A. IVES, Judge	10
_________________________________	11
MICHAEL D. BUSTAMANTE, Judge, retired, sitting by designation	12