December 28, 2018- LSF9 Master Participation Trust v. Joann Sanchez, No. A-1-CA-36014

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Court of Appeals of New Mexico

Opinion Number: Filed 12/28/2018 10:35 AM
Filing Date: December 28, 2018 AL we [> I
NO. A-1-CA-36014 Mark Reynolds

LSF9 MASTER PARTICIPATION TRUST,
Plaintiff-Appellant,

Vv.

JOANN SANCHEZ and FRANK
F. SANCHEZ,

Defendants-Appellees,
and

WELLS FARGO BANK, N.A. BY
MERGER WITH WELLS FARGO
FINANCIAL BANK, and CANVASBACK
FINANCIAL SERVICES, LLC,

Defendants.

APPEAL FROM THE DISTRICT COURT OF DONA ANA COUNTY
Mary W. Rosner, District Judge

McCarthy & Holthus, LLP
Joshua T. Chappell

Karen Weaver
Albuquerque, NM

for Appellant

Eric Ortiz & Associates

2|| Eric N. Ortiz
3], Albuquerque, NM

—

4| for Appellees

1 	OPINION
2 VIGIL, Judge.
3 	{t} 	Wells Fargo (Bank) appealed from the district court's order dismissing its
4 foreclosure action against Joann and Frank Sanchez (Homeowners) with prejudice.
5 During the pendency of the appeal, and after briefing was completed, Bank filed a
6 motion to substitute LSF9 Master Participation Trust (LSF9) as appellant in the case,
7 which we granted. LSF9 raised no new claims after our order of substitution, and as
8 such, we address the arguments raised by Bank. Bank made two arguments on
9 appeal: (1) the district court erred in dismissing its entire foreclosure claim as barred
10 by the applicable statute of limitations, NMSA 1978, § 37-1-3(A) (2015); and (2)
11 	the district court abused its discretion in denying Bank leave to amend its complaint
12 to plead the tolling effect on the statute of limitations of Homeowners' three
13 	bankruptcy cases. We reverse.
14 BACKGROUND
15 	{2} 	The material facts are not in dispute. On October 30, 2007, Homeowners
16 executed a note and mortgage to secure a $203,669.41 loan. The mortgage was
17 secured by real property located in Las Cruces, New Mexico: The note and mortgage
18 provided for periodic payments in the amount of $1,712.55 to be paid on the fourth
19 day of every month beginning on December 4, 2007. The note and mortgage also
20 contained acceleration clauses, providing that in the event of default, Bank "may

1 require [Homeowners] to pay immediately the full amount of [p ]rincipal which has
2 not been paid and all the interest that [Homeowners] owe on that amount."
3 {3} 	Homeowner 	defaulted 	on the 	loan 	on 	October 	4, 	2008. 	Bank filed 	a
.4 	foreclosure action against Homeowners on October 7, 2009. In this action, Bank
5 asserted that it was exercising its· option under the note to accelerate and declare
6 immediately payable and due the full amount of principal and all interest still owed
7 under the note.
8 	{4} 	On June 21, 2011, during the pendency of the first foreclosure action,
9 Homeowners 	filed 	for 	Chapter 	13 	bankruptcy, 	which was 	dismissed without
10 prejudice on August 18, 2011, for failure to file information. Homeowners filed a
11 	second bankruptcy under Chapter 13 on November 17, 2011, which was dismissed
12 for failure to make plan payments on June 15, 2012. During the pendency of the
13 	second bankruptcy, Bank voluntarily dismissed the first foreclosure action on March
14 20, 2012. Homeowners thereafter filed a third bankruptcy under Chapter 7 on August
15 	21, 2012, which resulted in a discharge order entered on January 23, 2013.
16 	{5} 	On February 22, 2016, Bank filed its second, and the currently operative,
17 foreclosure action against Homeowners stemming from Homeowners' October 4,
18 2008 default. Bank alleged in the complaint that its claim was for the accelerated
19 unpaid balance and that it had sent Homeowners a notice of default and a demand
20 letter on August 28, 2015, requesting Homeowners cure of the default. Although not
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1 specifically alleging Homeowners' three bankruptcy cases, Bank only sought in rem
2 relief in the complaint. However, concurrent with the complaint, Bank filed a notice
3 of bankruptcy discharge and disclaimer of deficiency that referenced Homeowners'
4 successful Chapter 7 bankruptcy and included a copy of the order of discharge as an
5 exhibit.
6 	{6} 	Homeowners filed a motion to dismiss pursuant to Rule 1-012(B)(l), (6)
7 NMRA. Homeowners argued that the statute of limitations for a written contract of
8 six years pursuant to Section 37-1-3(A) applied, and because more than six years
9 had elapsed between their default on October 4, 2008, and Bank's filing of the
10 	second foreclosure action on February 22, 2016, Bank's foreclosure claim was
11 	barred.
12 {7} 	Bank responded that pursuant to Welty v. Western Bank ofLas Cruces, 1987-
13 	NMSC-066, 106 N.M. 126, 740 P.2d 120, new and separate breaches of the note and
14 mortgage occurred between Homeowners' original default on October 4, 2008 and
15 	October 7, 2009, when Bank accelerated the loan-and each separate breach of the
16 note and mortgage accrued a new six-year period of limitation for each missed
17 payment. Bank therefore argued that while its claim for some of Homeowners'
18 	oldest missed payments may have been barred by Section 37-1-3, the majority of
19 Homeowners' missed payments, including the accelerated balance as of October 7,
20 2009, fell within the statute of limitations in light of the tolling of the limitations
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l 	period because of Homeowners' three bankruptcy cases pursuant to 11 U.S.C. § 362
2 (2012) (stating the circumstances in which the filing of a bankruptcy petition triggers
3 an automatic stay of other proceedings involving the property of a debtor or
4 bankruptcy estate), and NMSA 1978, Section 37-1-12 (1880) (governing the effect
5 of a stay on the computation of statutes of limitations).
6 {8} 	After a hearing, the district court dismissed Bank's foreclosure complaint with
7 prejudice. The district court ruled that it would not consider the tolling effect of
8 Homeowners' bankruptcy filings and denied Bank's request to amend its complaint
9 to plead facts concerning Homeowners' bankruptcies and their tolling effect on the
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10 limitation period for Bank's foreclosure claim. The district court did not provide
11 	reasoning explaining why it would not grant Bank leave to amend its complaint, but
12 apparently agreed with Homeowners' argument that "[t]here has been nothing that
13 	prevented [Bank] from filing a motion to amend" between the filing of the complaint
14 and litigation of Homeowners' motion to dismiss, and that "if [Bank] wished to
15 	remedy the problem by amending the complaint, they had the opportunity to do that
16 and they failed to do so."
17 	{9} 	Bank appeals from the order of dismissal with prejudice.
4

1 DISCUSSION
2 I. 	Standard of Review
3 	{to} 	"When facts relevant to a statute of limitations issue are not in dispute, the
4 standard of review is whether the district court correctly applied the law to the
5 undisputed facts." Haas Enters. v. Davis, 2003-NMCA-143, ,-r 9, 134 N.M. 675, 82
6 P.3d 42. "We review questions of law de novo." Id. Further, insofar as our analysis
7 involves statutory interpretation, our review is de novo. See Wolinsky v. N.M Corr.
8 Dep 't, 2018-NMCA-071, i13, 429 P.3d 991, cert. denied, 2018-NMCERT-_ (No.
9 S-1-SC-37287, Oct. 26, 2018).
10 	II. 	Dismissal of Bank's Foreclosure Claim Was Precluded by Section 37-1-3
11 	{11} 	Bank argues that the district court erred in dismissing its entire foreclosure
12 claim with prejudice as barred by the statute of limitations, Section 37-l-3(A)
13 	(providing that "[a]ctions founded upon any bond, promissory note, bill of exchange
14 or other contract in writing shall be brought within six years"). Bank concedes that
15 	certain of Homeowners' missed payments due prior to Bank's October 7, 2009
16 acceleration of the balance remaining under the note may have been barred when
17 Bank filed the second foreclosure action on February 22, 2016. However, Bank
18 	asserts that the limitation period had not run on the accelerated balance as of October
19 7, 2009, considering the import of Welty and the tolling of the limitation period due
20 to Homeowners' three bankruptcy cases and Bank's 2015 demand letter. We agree.
5

1 A. 	Homeowners' 	Missed 	Payments 	Prior 	to 	Bank's 	October 	7, 	2009
2 	Acceleration
3 	{12} 	Generally, "[i]n a breach of contract action, the statute of limitations begins
4 to run from the time of the breach." Welty, 1987-NMSC-066, ,r 8. In the context of
5 an installment contract, like the note in this case, see Maffett v. Emmons, 1948-
6 NMSC-012, ,r,r 1, 6, 52 N.M. 115, 192 P.2d 557 (construing a note promising
7 periodic payments as an installment contract), our Supreme Court held in Welty that
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under contract obligations payable by installments, the statute [of
limitations defined in Section 37-1-3(A)] would have begun to run only
with respect to each installment when due. The statute would have
begun to run with respect to the whole indebtedness only from the date
of an exercise of the option to declare the whole.indebtedness due.
13 	Welty, 1987-NMSC-066, ,r 9.
14 	{13} 	Under the foregoing authority, we conclude that the payments due between
15 	October 4, 2008 and October 4, 2009, prior to Bank's October 7, 2009 acceleration
16 	of the balance due under the note, were barred by the statute of limitations at the
17 time of Bank's filing of the second foreclosure action. Pursuant to the note, which
18 provided that payments were due on the fourth day of every month, the last payment
19 Homeowners failed to make prior to the October 7, 2009 acceleration was the
20 payment scheduled for October 4, 2009. Applying Welty, the limitation period for
21 	this missed payment accrued on October 4, 2009, and ran six years later, on October
22 4, 2015-142 days before Bank filed the second foreclosure action on February 22,
23 	2016. See 1987-NMSC-066, ,r 9. It follows that the statute of limitations for each
6

1 payment missed by Homeowners prior to the October 4, 2009 payment also ran prior
2 to Bank's filing of the second foreclosure action. Id.
3 B. 	Homeowners' Obligation Under the Note After Ban~'s October 7, 2009
4 	Acceleration
5 	{14} 	The 	fundamental 	dispute 	in 	this 	case 	concerns 	the 	tolling 	effect 	of
6 Homeowners' three bankruptcy filings and Bank's 2015 demand letter on the
7 running statute of limitations for Bank's claim for the remaining amount due under
8 the note after Bank's October 7, 2009 acceleration.
9 	{15} 	Bank argues that mandatory stays on its foreclosure claim were triggered by
10 Homeowners' bankruptcy filings, which tolled the statute of limitations for the
11 	periods of time during which those cases were pending pursuant to 	11 U.S.C.
12 	§ 362(a) 	and 	Section 	37-1-12. 	See 	§ 	37-1-12 	(providing 	that 	"[w]hen 	the
13 	commencement of any action shall be stayed or prevented by injunction order or
14 other lawful proceeding, the time such injunction order or proceeding shall continue
15 	in force shall not be counted in computing the period oflimitation"). Further, relying
16 on our Supreme Court's statement in Welty, 1987-NMSC-066, 1 9, that where a
17 contract prohibits commencement of a suit for default within thirty days of demand,
18 the statute of limitations is tolled during that period, Bank asserts that under the
19 terms of the note, following service of the demand letter to Homeowners on August
20 28, 2015, the limitation period was tolled for an additional thirty days. Based on
21 	these asserted periods of tolling of the limitation period for Bank's claim for the
7

1 accelerated balance as of October 7, 2009, Bank contends that the second foreclosure
2 action was timely filed within the six-year limitation period.
3 {16} 	Homeowners respond that although generally "the filing of a bankruptcy
4 petition operates as a stay of the commencement or continuation of judicial actions
5 such as the foreclosures at issue in this case[,]" here, § 362(c)(3) and 11 U.S.C. §
6 	108(c) (2012) operate as an exception or limitation to the general rule stated in §
7 362(a). Specifically, under these sections of the Bankruptcy Code, Homeowners
8 argue that Bank is not entitled to toll the time of Homeowners' bankruptcies. It
9 	follows, Homeowners assert, Bank's second foreclosure action was filed after the
10 statute of limitations had run.
11 	{17} 	The commencement of a case under the Bankruptcy Code "creates an estate.
12 Such estate is comprised of ... all legal or equitable interests of the debtor in property
13 	as of the commencement of the case." 11 U.S.C. § 541(a){l) (2016). The filing of a
14 petition under the bankruptcy code "operates as a stay, applicable to all entities, of.
15 	.. any act to obtain possession of property of the estate or of property from the estate
16 or to exercise control over property of the estate[.]"§ 362(a)(3).
17 	{18} 	Pursuant to § 362(c)(3)(A), "if a single or joint case is filed by or against a
18 debtor is filed by or against a debtor who is an individual in a case under Chapter 7,
19 	11, or 13, and if a single or joint case of the debtor was pending within the preceding
20 	1-year period but was dismissed ... the stay under subsection (a) with respect to any
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1. action taken with respect to a debt or property securing such debt ... shall terminate
2 with respect to the debtor on the 30th day after the filing of the later case."
3 (Emphases added.) Similarly, pursuant to§ 108(c):
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if applicable nonbankruptcy law ... fixes a period for commencing or
continuing a civil action in a ·court other than a bankruptcy court on a
claim against the debtor, or against [a codebtor] ... protected under
section 1201 or 1301 of this title, and such period has not expired before
the date of the filing of the petition, then such period does not expire
until the later of--
( 1) the end of such period, including any suspension of such
period occurring on or after the commencement of the case;
or
(2) 30 days after notice of the termination or expiration of the
stay under section 362, 922, 1201, or 1301 of this title, as the
case 	may be, with respect to such claim.
16 (Emphasis added.)
17 {19} 	While Homeowners are correct to note that § 362(c)(3) and § 108(c) can
18 	operate as exceptions or limitations to the mandatory stays described in§ 362(a) in
19 actions filed by or against the debtor, Homeowners fail to recognize the significance,
20 as Bank argues in its reply brief, of the material distinction drawn in bankruptcy law
21 	between actions against the debtor and actions against the estate, as described in §
22 541, in the context of§ 362(a). Bank argues that the precedent of "[a] majority of
23 	federal courts, including the Tenth Circuit's Bankruptcy Appellate Panel[,]" which
24 would have applied to Homeowners' bankruptcy case that was brought in New
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1 Mexico, 	holds 	that termination 	of the 	automatic 	stay 	occurs, 	pursuant to 	§
2 362(c)(3)(A), only with regard to the debtor-not the estate. In support of this
3 argument, Bank cites In re Holcomb, 380 B.R. 813 (B.A.P. 10th Cir. 2008).
4 	{20} 	In Holcomb, the Tenth Circuit Bankruptcy Appellate Panel held that:
5 	a majority of courts have [concluded] ... the automatic stay terminates
6 	under § 362(c)(3)(A) only with respect to the debtor and the debtor's
7 	property but not as to the property of the e~tate. These courts reason
8 	that if Congress meant to terminate the stay in its entirety, it would have
9 	done so in plain language[.] ... On this basis, we conclude that the
10 	language of§ 362(c)(3)(A) terminates the stay only as to the debtor and
11 	the debtor's property.
12 380 B.R. at 815-16 (citations omitted). Accordingly, following the Tenth Circuit
13 	precedent in Holcomb, we conclude that § 362(c)(3) and § 108(c), each of which
14 apply only to actions brought by or against the debtor, do not apply to this case in
15 	which Bank sought only in rem relief against the property 	of Homeowners'
16 bankruptcy estate. See Fed. Nat'[ Mortg. Ass'n v. Chiulli, 2018-NMCA-054, 12,
17 425 P.3d 739 (recognizing that in the event of a default on a promissory note, the
18 	mortgagee has an independent remedy to sue on the note or in rem against the
19 mortgaged property to satisfy the debt).
20 	{21} 	Concluding § 362(c)(3) and 108( c) do not apply to this case, we tum to Bank's
21 	argument that, pursuant to Section 37-1-12, the statute of limitations for its claim for
22 the accelerated balance as of October 7, 2009, was tolled during the periods in which
10

1 Homeowners' three bankruptcies were pending in federal bankruptcy court as a
2 result of§ 362(a) automatic stays.
3 	{22} 	Homeowners' respond, in pertinent part, that " [e]ven if this Court reads
4 Section 3 7-1-12 as t~lling the time in which the bankruptcy stay was in effect, . . .
5 the Bank may not toll the 58 days of the first bankruptcy because the 	[f]irst
6 [fJoreclosure [l]awsuit, which was filed prior to the first bankruptcy, was pending
7 during the first bankruptcy." In support, Homeowners' cite Butler v. 	Deutsche
8 Morgan Grenfell, Inc., 2006-NMCA-084, ,-r 18, 140 N.M. 111, 140 P.3d 532 for the
9 proposition that "Section 37.;.1-12 does not apply unless the 'commencement' of an
10 action is stayed or prevented[.]'"
11 	{23} 	We assume without deciding that Homeowners argument concerning the
12 applicability of Section 37-1-12 to the automatic stay resulting from their first
13 	bankruptcy is correct. Furthermore, we also assume that this rationale also applies
14 to 	the 	approximate 	four-month 	period 	in 	which 	both 	Homeowners' 	second
15 	bankruptcy (filed on November 17, 2011) and Bank's first foreclosure actions were
16 concurrently pending in federal bankruptcy and New Mexico state district court prior
17 to Bank's voluntary dismissal of the first foreclosure action on March 20, 2012.
18 ·However, notwithstanding these assumptions, we conclude sufficient tolling of the
19 limitation period as a result of the stays resulting from Homeowners' 	second
20 bankruptcy (which remained pending after Bank's voluntary dismissal of the first
11

1 foreclosure action) and third bankruptcy cases operated to bring Bank's filing of the
2 second foreclosure action within the six-year limitation period as contemplated by
3 Section 37-1-12.
4 {24} 	First, under the undisputed facts, 88 days passed between Bank's March 20,
5 2012 voluntary dismissal 	of the first foreclosure 	action and the dismissal 	of
6 Homeo'Yners' second bankruptcy case on June 15, 2012. Second, 156 days passed
7 between Homeowners' filing of the third bankruptcy case on August 21, 2012 and
8 the bankruptcy court's January 23, 2013 discharge order. It follows, consistent with
9 Section 37-1-12, that the automatic stays pursuant to § 362(a), resulting from
10 Homeowners' second and third bankruptcies, operated to toll the limitation period
11 	for Bank's claim for the accelerated balance as of October 7, 2009, for a total of244
12 days. The six-year limitation period for the accelerated balance was originally
13 	scheduled to run on October 7, 2015; however, based on the 244-day tolling of the
14 limitation period, we conclude that limitation period was pushed to run on May 27,
15 	2016. Therefore, when Bank filed the second foreclosure action on February 22,
16 2016, 107 days remained under the statute of limitations for Bank to refile its action
17 for the accelerated balance. Accordingly, we conclude that the district court erred in
18 	dismissing Bank's entire foreclosure claim as precluded by the statute oflimitations.
19 	{25} 	In so concluding, we briefly address the issue raised by Bank concerning the
20 tolling effect of Bank's 2015 demand letter, which Bank argues should apply to toll
12

1 the limitation period for an additional thirty days on grounds that Homeowners failed
2 to respond to the argument, constituting a concession of the issue. See, e.g., State v.
3 	Templeton, 2007-NMCA-108, ,r 22, 142 N.M. 369, 165 P.3d 1145 (stating that the
4 failure to respond to contentions made in an answer brief is "a concession on the
5 matter"). Based on our conclusion above that Bank's claim for the accelerated
6 balance 	as 	of 	October 	7, 	2009 	was 	filed 	within 	the 	statute 	of limitations,
7 determination of this issue is unnecessary. Similarly, based on our conclusion above,
8 we do not address Bank's second argument-that the district court abused its
9 discretion in denying Bank leave to amend the second foreclosure complaint to plead
10 Homeowners' three bankruptcy cases.
11 	CONCLUSION
12 	{26} 	The district court's order of dismissal is reversed. We remand for further
13 	proceedings consistent with this opinion.
14 {27} 	IT IS SO ORDERED.
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17 WE CONCUR:
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