Bank of New York v. Romero
320 P.3d 1
N.M.2014Background
- In 2006 Joseph and Mary Romero refinanced their Chimayo home with Equity One via a $227,240 loan (NINA/no‑income loan); mortgage was recorded with MERS as nominee for Equity One. The Romeros received approximately $30,000 cash and higher payments/interest.
- The Romeros defaulted; on April 1, 2008 the Bank of New York (as trustee for a Popular series) filed foreclosure, claiming to be holder/enforcer of the note and mortgage.
- At trial the Bank produced (a) a note copy that contained two undated indorsements (a blank indorsement by Equity One and a special indorsement to JPMorgan Chase), (b) a June 25, 2008 MERS assignment of the mortgage to the Bank (filed three months after the foreclosure complaint), and (c) testimony/affidavit from servicing employees whose employers began servicing for the Bank after the foreclosure filing.
- The district court found the Bank had standing, concluded the HLPA’s antiflipping provision was not violated (because cash payout constituted a reasonable, tangible net benefit), and held federal law preempted the HLPA as to a national bank. The Court of Appeals affirmed on standing and HLPA, and did not decide preemption. The Supreme Court granted certiorari.
- The Supreme Court reversed: (1) the Bank failed to prove standing to enforce the note at the time suit was filed, (2) a borrower’s ability to repay is a required part of the HLPA’s "borrower’s circumstances" for assessing a reasonable, tangible net benefit, and (3) the HLPA is not preempted by federal law under the clarified Barnett/Dodd‑Frank standards.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to foreclose (right to enforce note) | Bank: possession of the note, MERS assignment, and servicer testimony show it had enforcement rights when suit was filed | Romeros: note showed special indorsement to JPMorgan Chase; MERS assignment post‑dates filing; servicer witnesses lacked personal knowledge; possession alone insufficient | Bank lacked standing; evidence insufficient under UCC to show holder or transferee with rights at filing |
| Effect of indorsements on holder status | Bank: possession plus indorsement/records establish entitlement | Romeros: special indorsement to JPMorgan Chase controls; blank indorsement cannot be used to ignore a special indorsement | Special indorsement to JPMorgan Chase precluded treating the Bank as holder; cannot ignore restrictive indorsement |
| Admissibility of servicing testimony / business records | Bank: custodian testimony and affidavit prove transfer/records | Romeros: witnesses lacked personal knowledge when transfer allegedly occurred; records not admitted | Testimony was inadmissible hearsay under business‑records rule absent foundation documents; did not prove transfer |
| Scope of HLPA antiflipping test — must lender consider borrower’s ability to repay? | Bank/Ct of Appeals: HLPA does not expressly list ability to repay among "borrower’s circumstances" in 2003 statute | Romeros: statutory phrase "all of the circumstances, including the borrower’s circumstances" and HLPA purpose require consideration of repayment ability | Held: ability to repay is a required factor in the reasonable, tangible net benefit analysis under the HLPA |
| Federal preemption of HLPA | Bank: OCC preemption/regulation shields national banks from state rule | Romeros: Dodd‑Frank, Barnett, Cuomo limit OCC preemption; HLPA is a neutral state consumer law | Held: HLPA is not preempted; federal law (post‑Dodd‑Frank and Supreme Court precedent) does not bar enforcement of HLPA generally |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing evaluated as of commencement of suit)
- Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25 (state law preempted only when it prevents or significantly interferes with national bank powers)
- Watters v. Wachovia Bank, N.A., 550 U.S. 1 (federal preemption of certain state regulation of national banks but subject to limits)
- Cuomo v. Clearing House Ass'n, L.L.C., 557 U.S. 519 (OCC’s broad preemption rule is limited; states retain enforcement authority for many laws)
- First State Bank at Gallup v. Clark, 91 N.M. 117 (transferees are bound by the instrument’s face; negotiable instrument rules govern holder status)