PHOENIX FUNDING, LLC, Plaintiff-Respondent, v. AURORA LOAN SERVICES, LLC and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants-Petitioners.
NO. S-1-SC-35512
IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
January 26, 2017
Francis J. Matthew, District Judge
ORIGINAL PROCEEDING ON CERTIORARI
Jamie G. Siler James P. Eckels Denver, CO for Petitioners
William F. Davis & Associates, P.C. Nephi Hardman
NAKAMURA, Justice.
{1} We are called to decide whether a 2009 default foreclosure judgment may be collaterally attacked based on assertions that the judgment was void for lack of jurisdiction and procured by fraud. In this case, those assertions were made by Phoenix Funding, LLC, which attempted to overturn a settled foreclosure judgment entered in favor of Aurora Loan Services, LLC. We hold that the 2009 default judgment was not void and that Phoenix’s fraud claim is procedurally barred. Accordingly, we reverse the judgment of the Court of Appeals, reinstate the district court’s grant of summary judgment to Aurora, and remand to the district court with instructions to dismiss Phoenix’s fraud claim.
I. BACKGROUND
{2} On December 13, 2006, Kirsten Hood executed a promissory note payable to GreenPoint Mortgage Funding, Inc., for the purchase of a home in Santa Fe, New Mexico (the Property). This note was secured by a mortgage in favor of Mortgage Electronic Registration Systems, Inc., (MERS), as nominee for GreenPoint.
{3} By way of the following transactions, the Hood note was eventually transferred from GreenPoint to Aurora. First, after origination, the note was pooled into a securitized trust—namely, GreenPoint Mortgage Funding Trust Mortgage Pass-
{4} On March 3, 2009, Aurora filed a foreclosure complaint in district court, alleging that Hood had defaulted on the note. Aurora alleged that it was, by assignment, the current holder of the note and mortgage. Aurora attached to its complaint an unindorsed copy of both the Hood note and a document entitled “Corporate Assignment of Mortgage” indicating that MERS had assigned to Aurora the mortgage “together with the Note . . . .”
{5} Because Hood did not respond to Aurora’s complaint, the district court entered default judgment on October 8, 2009, finding that the note and mortgage had been properly assigned to Aurora. The district court also found that Hood had defaulted on the note, ordered the mortgage foreclosed, and appointed a special master to conduct a foreclosure sale. Hood neither redeemed the Property nor appealed the district court’s order.
{6} Aurora purchased the Property at the foreclosure sale and recorded a Special
{7} Enter Gregory Hutchins, a speculator in foreclosed properties. Seeking to procure the Property, on November 3, 2011—fourteen months after the district court approved the Special Master’s Deed—Hutchins obtained a quitclaim deed to the Property from Hood for “valuable consideration.” Hood executed the quitclaim deed on November 3, 2011, despite the 2009 default judgment against her. The deed was recorded on the same day.
{8} Hutchins then attempted to transfer the Property to Phoenix, a New Mexico limited liability company of which Hutchins was the sole member. Hutchins first executed a note, promising to pay $750,000.00 to Phoenix. As security for the note, he executed a mortgage in favor of Phoenix, encumbering his supposed interest in the Property.
{9} On March 1, 2012, Phoenix filed a complaint against Hutchins, GreenPoint, Aurora, and MERS. Against Hutchins, Phoenix asserted actions for judgment on the note, foreclosure on the Property, and quiet title. This Court recognizes that, by directing Phoenix to assert these claims in this case, Hutchins effectively sued himself in his attempt to take control of the Property.
{11} Aurora and MERS answered and asserted counterclaims against Phoenix and crossclaims against Hutchins to cancel the quitclaim deed and the Hutchins mortgage. Aurora and MERS also asserted counterclaims and crossclaims against Phoenix and Hutchins, respectively, for declaratory judgment and quiet title. GreenPoint did not answer the complaint, leading to the district court’s entry of default judgment. Hutchins responded to Phoenix’s complaint by disclaiming all interest in the matter.
{12} Aurora, MERS, and Phoenix cross-moved for summary judgment. Aurora and MERS argued, inter alia, that Aurora had standing to assert the 2009 foreclosure action against Hood, that Phoenix’s claims were barred by res judicata, and that Phoenix’s complaint was an improper collateral attack on the 2009 default judgment against Hood. Phoenix, by contrast, repeated its argument that the 2009 district court
{13} Phoenix also argued in its summary judgment motion that Aurora committed fraud by attaching the Corporate Assignment of Mortgage to its 2009 foreclosure action against Hood. Phoenix’s fraud claim alleged that Aurora was not a successor to GreenPoint and, therefore, lacked the right either to prepare the Corporate Assignment or to direct MERS to do so. According to Phoenix, Aurora’s attachment of the Corporate Assignment to Aurora’s 2009 complaint constituted a fraud on the district court that warranted setting aside the 2009 foreclosure judgment. In its complaint, Phoenix did not assert a claim to set aside the 2009 default foreclosure judgment for fraud. Rather, Phoenix first raised its fraud theory in its motion for summary judgment.
{14} The district court granted summary judgment to Aurora and MERS. The district court determined that Phoenix’s suit was a collateral attack by a party in privity with or a successor-in-interest to Hood. The district court also concluded that the 2009 district court had jurisdiction over Aurora’s foreclosure action, that the district court’s default foreclosure judgment was therefore not void, and, accordingly, that Phoenix’s claims were barred by res judicata. The district court declared that
{15} The Court of Appeals reversed the district court. Phoenix Funding, LLC v. Aurora Loan Servs., LLC, 2016-NMCA-010, ¶ 1, 365 P.3d 8, cert. granted 2016-NMCERT-001. The Court first determined that judgments may be challenged collaterally “where the challenge is based on an asserted lack of jurisdiction” of the court that rendered the judgment. Id. ¶ 11. The Court then considered whether the 2009 district court had subject matter jurisdiction to render the default foreclosure judgment against Hood. Id. ¶¶ 14-28. The Court noted that, under Bank of New York v. Romero, a plaintiff’s failure to establish standing to foreclose is a jurisdictional defect and that a plaintiff must demonstrate that it had the right to enforce a note at the time of filing suit in order to establish standing. Phoenix Funding, 2016-NMCA-010, ¶¶ 15, 21 (citing Bank of N.Y., 2014-NMSC-007, ¶ 17, 320 P.3d 1). The Court of Appeals determined that Aurora did not present sufficient evidence to establish that it was the holder of the note at the time it filed suit. Phoenix Funding, 2016-NMCA-010, ¶ 20. The Court of Appeals, therefore, concluded that Aurora lacked standing to foreclose, which consequently deprived the 2009 district court of subject
{16} Aurora and MERS petitioned for a writ of certiorari. We granted the petition and issued the writ, exercising our jurisdiction under
II. DISCUSSION
A. Standard of Review
{17} We review the district court’s grant of summary judgment to Aurora and MERS de novo. See Encinias v. Whitener Law Firm, P.A., 2013-NMSC-045, ¶ 6, 310 P.3d 611. In the summary judgment posture, we review the facts and make all reasonable inferences from the record in the light most favorable to the party opponent of the motion. Id. “‘Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law.‘” Id. (citation omitted); see also
1. Because standing is a jurisdictional prerequisite only for causes of action created by statute, standing is not a jurisdictional prerequisite in actions to enforce a promissory note and foreclose on a mortgage
{18} We recently clarified the relationship between justiciability requirements and subject matter jurisdiction. See Am. Fed. of State, Cty. & Mun. Emps. v. Bd. of Cty. Comm’rs of Bernalillo Cty. (AFSCME), 2016-NMSC-017, ¶¶ 14-15, 373 P.3d 989; Deutsche Bank Nat’l Trust Co. v. Johnston, 2016-NMSC-013, ¶¶ 10-12, 369 P.3d 1046. Unlike in the federal courts, the requirement of a plaintiff’s standing to commence suit in New Mexico courts is not derived from a constitutional limitation on the power of the judicial branch. Compare, e.g., City of Los Angeles v. Lyons, 461 U.S. 95, 101-102 (1983) (“[Anyone] who seek[s] to invoke the jurisdiction of the federal courts must satsify the threshold requirement imposed by
{19} In some cases, however, justiciability requirements are jurisdictional prerequisites. For example, standing is a jurisdictional prerequisite where an action is created by statute and the statute specifies that only a limited class of plaintiffs who satisfy certain conditions may sue. See Deutsche Bank, 2016-NMSC-013, ¶ 11 (“‘[W]hen a statute creates a cause of action and designates who may sue, the issue of standing becomes interwoven with that of subject matter jurisdiction. Standing then becomes a jurisdictional prerequisite to an action.‘” (citation omitted)); see also AFSCME, 2016-NMSC-017, ¶ 31 (“Under New Mexico’s
{20} By contrast, when a claim is not created by statute but rather was born of common law, the lack of the traditional justiciability prerequisites does not impair a court’s jurisdiction. See Deutsche Bank, 2016-NMSC-013, ¶ 12 (“[A]n action to enforce a promissory note fell within the district court’s general subject matter jurisdiction . . . because it was not created by statute.”). New Mexico courts have general subject matter jurisdiction over common-law claims. See
{21} Employing this framework, this Court explained in Deutsche Bank that because actions to enforce a promissory note and foreclose on a mortgage originated at common law and were not created by statute, standing in mortgage-foreclosure cases is a prudential concern. See 2016-NMSC-013, ¶¶ 12-13. The lack of a plaintiff’s standing in an action to enforce a promissory note does not divest a court of subject matter jurisdiction. See id. Consequently, when a district court enters a foreclosure judgment against a defendant, that judgment cannot be collaterally attacked in a subsequent action as void for the reason that the plaintiff in the prior matter lacked standing. See id. ¶ 34. Deutsche Bank explained that this framework was a clear “practical implication[] of our holding that standing is not jurisdictional in mortgage foreclosure cases.” Id. ¶ 33.
{22} Phoenix cannot successfully argue that the 2009 district court lacked jurisdiction over Aurora’s foreclosure action because Aurora lacked standing. The
2. Deutsche Bank’s holding is not limited to nonnegotiable instruments
{23} Phoenix attempts to escape the reach of Deutsche Bank by contending that our holding in that opinion is limited to nonnegotiable instruments. Phoenix asserts that, unlike actions to enforce nonnegotiable instruments, actions to enforce negotiable instruments are a creation of the Uniform Commercial Code and did not originate at common law. Phoenix argues that because the Hood note was a negotiable instrument, Deutsche Bank does not apply, and consequently, the district court lacked subject matter jurisdiction and its default judgment against Hood is void.
{24} We are unconvinced; our holding in Deutsche Bank is not limited to nonnegotiable instruments. First, contrary to Phoenix’s contention, Deutsche Bank involved a negotiable instrument, and, hence, its holding directly applies to this case. See 2016-NMSC-013, ¶¶ 2-3, 6, 13. Second and also contrary to Phoenix’s contention, actions to enforce negotiable instruments, including promissory notes, originated at common law. “[T]he principles that govern negotiable instruments
The adoption of the Uniform Negotiable Instruments Act introduced no new system. Generally speaking . . . it is merely declaratory of the existing law merchant or common law. Prior to 1907, when we adopted it, a very few sections embodied all of our statute law of negotiable instruments. Our law was the common law, which we adopted in 1876 as the rule of practice and decision.
1925-NMSC-026, ¶ 17, 31 N.M. 344, 245 P. 543 (citing Section 1345, C.L. 1915). Hence, Phoenix’s suggestion that actions to enforce negotiable instruments did not exist at common law is without merit, and accordingly, its attempt to limit Deutsche Bank’s holding to nonnegotiable instruments fails.
{25} We are also unpersuaded by Phoenix’s assertion that standing is jurisdictional
3. A plaintiff’s failure to establish standing in an action to enforce a promissory note does not divest a district court of the power or authority to decide the particular matter presented
{26} Phoenix also attempts to evade the application of Deutsche Bank to this case. Phoenix argues that, despite Deutsche Bank, Aurora’s failure to establish standing nevertheless deprived the district court of jurisdiction. According to Phoenix, Aurora’s lack of standing divested the court of a jurisdictional concept separate from subject matter jurisdiction—namely, the power or authority to decide the particular matter presented. In support of this contention, Phoenix adverts to this Court’s statement that “[t]here are three jurisdictional essentials necessary to the validity of every judgment: jurisdiction of parties, jurisdiction of subject matter and power or authority to decide the particular matter presented.” Heckathorn v. Heckathorn, 1967-NMSC-017, ¶ 10, 77 N.M. 369, 423 P.2d 410; see also In re Field’s Estate, 1936-NMSC-060, ¶ 11, 40 N.M. 423, 60 P.2d 945 (same). In Heckathorn, this Court concluded that the lack of power or authority to decide a particular case renders a
{27} We have previously doubted but have not decided whether there is a true distinction between, on the one hand, a court’s power or authority to decide the matter presented and, on the other, a court’s subject matter jurisdiction. See Sundance Mech. & Util. Corp. v. Atlas, 1990-NMSC-031, ¶ 13, 109 N.M. 683, 789 P.2d 1250 (“[O]ne may doubt that the distinction serves any useful purpose.”). We now clarify that a court’s power or authority to decide the particular matter presented is not distinct from subject matter jurisdiction.
{28} In the past, this Court has simply used the formulation power or authority to decide the particular matter presented to refer to subject matter jurisdiction for a certain set of claims. New Mexico appellate courts have expressly considered a court’s power or authority to decide the particular matter presented only where a statute created the claim at issue and specifically empowered a court to adjudicate that class of claim. See Heckathorn, 1967-NMSC-017, ¶¶ 10-11 (concluding that the trial
{29} We reject the assertion by Phoenix that a court’s power or authority to decide the particular matter presented is distinct from the court’s subject-matter jurisdiction. See, e.g., Heckathorn, 1967-NMSC-017, ¶ 10. That formulation, which concerns causes of actions that are created by statute, is unavailing to Phoenix. As we explained, the 2009 district court’s jurisdiction over the foreclosure action was not conferred by statute. Accordingly, the cases in which we have referred to a court’s power or authority to decide the particular matter presented are inapposite.
C. Phoenix Is Barred From Asserting a Claim That the 2009 Foreclosure Judgment Should Be Set Aside for Fraud
{30} We now turn to Phoenix’s argument that the 2009 default foreclosure judgment should be set aside for fraud. We granted certiorari to consider whether this Court should uphold current New Mexico law regarding the “procedures and requirements for collaterally attacking judgments” or instead adopt those of the Restatement (Second) of Judgments. In its opinion, the Court of Appeals perceived tensions in New Mexico law concerning attacks on judgments and left “the task of resolving the tension, if any,” to this Court. Phoenix Funding, 2016-NMCA-010, ¶ 44 (quoting State ex rel. Martinez v. City of Las Vegas, 2004-NMSC-009, ¶ 22, 135 N.M. 375, 89 P.3d 47 (inviting the Court of Appeals “‘to explain any reservations it might harbor
1. New Mexico law regarding relief from judgments is consistent with the Restatement (Second) of Judgments
{31} Although the Restatement (Second) of Judgments jettisons the terminology of “direct attacks” and “collateral attacks,” New Mexico courts have adhered to the use of those terms as shorthand for different ways of seeking relief from judgments. Despite that difference in terminology, we do not perceive New Mexico law concerning relief from final judgments to be inconsistent in substance with the position articulated by the Restatement (Second) of Judgments. Nor do we perceive any tensions in this area of law that are not readily relieved by reference to the course of judicial opinions that have applied it.
{32} To begin, the distinction between direct and collateral attacks in New Mexico case law is well developed:
A direct attack on a judgment is an attempt to avoid or correct it in some manner provided by law and in a proceeding instituted for that very purpose, in the same action and in the same court . . . . A collateral
Barela v. Lopez, 1966-NMSC-163, ¶ 5, 76 N.M. 632, 417 P.2d 441 (quoting Lucus v. Ruckman, 1955-NMSC-014, ¶ 12, 59 N.M. 504, 287 P.2d 68 (1955) (quoting 34 Corpus Juris § 827, at 520-21 (Mack, ed. 1924)), overruled on other grounds by Kalosha v. Novick, 1973-NMSC-010, 84 N.M. 502, 505 P.2d 845 (1973)); see also Hanratty v. Middle Rio Grande Conservancy Dist., 1970-NMSC-157, ¶¶ 4-5, 82 N.M. 275, 480 P.2d 165; Arthur v. Garcia, 1967-NMSC-205, ¶ 6, 78 N.M. 381, 431 P.2d 759; Sanders v. Estate of Sanders, 1996-NMCA-102, ¶ 23, 122 N.M. 468, 927 P.2d 23.
{33} In Bowers v. Brazell, an early opinion of this Court, we employed a contrary terminology, wherein we used the term “direct attack” in a way that could be read to describe what we would now call a “collateral attack“—namely, an independent action to challenge the validity of a prior judgment. See 1922-NMSC-014, ¶ 3, 27 N.M. 685, 205 P. 715. But this Court later noticed that the development of the law specifically rendered the imprecise Bowers formulation anomalous. See Apodaca v. Town of Tome Land Grant, 1971-NMSC-084, ¶ 5, 83 N.M. 55, 488 P.2d 105 (“[T]he
{34} A motion under
{36} In contrast to the straightforward procedure for a direct attack under
{37} Second, a litigant may file an independent action asserting that a previously rendered judgment was void for lack of jurisdiction. See, e.g., Bonds v. Joplin Heirs, 1958-NMSC-095, ¶ 13, 64 N.M. 342, 328 P.2d 597 (upholding collateral attack on judgment because the trial court that rendered judgment “failed to obtain jurisdiction of the parties or the subject matter“). Such an action may be properly filed as a claim for declaratory relief. See Heimann v. Adee, 1996-NMSC-053, ¶ 36, 122 N.M. 340, 924 P.2d 1352 (recognizing that a claim seeking a declaration that the prior judgment was void for lack of jurisdiction was a collateral attack on the judgment); see also Restatement (Second) of Judgments, ch. 5 intro. note at 138-39 (“When relief from a judgment may properly be sought through an independent action, a declaratory proceeding is usually the functional equivalent of the older equitable suit to enjoin enforcement of a judgment.“). And an action collaterally attacking a previous judgment as void for lack of jurisdiction may also be filed in “other proceedings long after the judgment has been entered.” Chavez v. Cty. of Valencia, 1974-NMSC-035, ¶ 15, 86 N.M. 205, 521 P.2d 1154 (citations omitted).
{38} Third, a litigant may argue (either based on fraud, accident, mistake, or lack of jurisdiction) for relief from judgment in a proceeding both separate from that in which the judgment was rendered and in which the judgment is relied on for a claim or defense. This may occur, for example, where a plaintiff attempts to use a prior judgment as a basis to achieve some further relief, and the defendant, through a
{39} In light of the development of New Mexico case law, we do not perceive any irreconcilable inconsistency between our law and the Restatement position regarding relief from judgments. As described above, in New Mexico, a litigant may seek relief from judgment through a direct attack by a
2. Phoenix‘s fraud claim is procedurally barred
{40} Phoenix may not pursue its claim that the 2009 default foreclosure judgment should be set aside for fraud. Phoenix points to Section 80 of the Restatement, but it is unavailing. This section allows for relief from judgment “[w]hen a judgment is relied upon as the basis for a claim or defense” where the litigant has made an “appropriate pleading” and establishes that “the convenient administration of justice would be served by determining the question of relief in the course of the subsequent action.” Restatement (Second) of Judgments § 80. Phoenix did not make an “appropriate pleading,” however, and its fraud claim is procedurally barred.
{42} Phoenix‘s 2012 complaint did not assert an independent claim to set aside the judgment for fraud. Rather, Phoenix asserted a claim against Aurora and MERS only for declaratory judgment that the 2009 default foreclosure judgment was void for lack of standing and a claim for quiet title. Phoenix first asserted its claim that the 2009 judgment should be set aside for fraud in its motion for summary judgment. This was improper, and Phoenix‘s claim for relief from judgment because of fraud is accordingly barred.
{43} Moreover, we note that Phoenix‘s claim for relief from judgment, founded on its allegation that the Corporate Assignment of Mortgage was fraudulent, likely fails on the merits. It has long been the law “that [a] court will not set aside a judgment because it was founded on a fraudulent instrument . . . .‘” Day, 1922-NMSC-012, ¶ 14 (quoting United States v. Throckmorton, 98 U.S. 61, 66 (1878)). We make this observation because the mortgage industry in New Mexico requires stability and because we disfavor the uncertainty that Phoenix has attempted to inject through its unmeritorious attempt to overturn a settled foreclosure judgment.
{44} For the reasons set forth above, we reverse the judgment of the Court of Appeals, reinstate the district court‘s 2012 grant of summary judgment to Aurora and MERS, and remand to the district court with instructions to dismiss Phoenix‘s fraud claim as procedurally barred.
{45} IT IS SO ORDERED.
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JUDITH K. NAKAMURA, Justice
WE CONCUR:
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CHARLES W. DANIELS, Chief Justice
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PETRA JIMENEZ MAES, Justice
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EDWARD L. CHÁVEZ, Justice
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JAMES J. WECHSLER, Judge, sitting by designation