The New Mexico Supreme Court decided Bank of New York v. Romero, No. 33,224 slip op. (N.M. S. Ct. February 13, 2014), last Thursday, which can be found here. The court held that (1) the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action, (2) that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the state Home Loan Protection Act (HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower, and (3) that the HLPA is not preempted by federal law.

The opinion spelled out the tough standards banks must meet to have standing to  initiate foreclosures, reviewed a whole bunch of alleged “evidence” produced by Bank of NY to establish standing, including plenty of affidavits and testimony from people with no personal knowledge of what was going on. The opinion debunks the use of the business records exception to get in documents no one knows anything about and has some good MERS language too. The opinion on these facts should help homeowners with funky documentation in other states as the principles discussed are universal. As such, the case established strong principles for homeowner protection from unscrupulous lenders.

In some ways the second half of the opinion is even a better read as it establishes that a lender must consider a borrower’s ability to repay a home mortgage loan when it determines whether the loan provides a reasonable, tangible net benefit to borrowers, as required by a state home loan protection act. In one quote, the court says:

" A lender’s willful blindness to its responsibility to consider the true circumstances of its  borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded."

In another, the court says:  

"Apart from the plain language of the statute and its express statutory purpose, it is difficult to comprehend how an unrepayable home mortgage loan that will result in a foreclosure on one’s home and a deficiency judgment to pay after the borrower is rendered homeless could provide 'a reasonable, tangible net benefit to the borrower."  (quoting the Home Loan Protection Act)

The decision established strong principles for HLPA actions in the future. The case grew out of the go-go securitized mortgage practices that led to the Great Recession, so hopefully, this decision will be a substantial precedent for the many homeowners facing falsely documented bank foreclosures.