PNC Mortgage v. Romero

I attest to the accuracy and
integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 15:23:44 2016.08.19

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2016-NMCA-064

Filing Date: April 26, 2016

Docket No. 33,394

PNC MORTGAGE, a division of PNC BANK
National Association, SUCCESSOR BY
MERGER TO NATIONAL CITY MORTGAGE,
a division of NATIONAL CITY BANK f/k/a
NATIONAL CITY BANK OF INDIANA,

Plaintiff-Appellee,

v.

DANA ROMERO and EUGENE ROMERO,

Defendants-Appellants.

APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
Sarah M. Singleton, District Judge

Brownstein Hyatt Farber Schreck, LLP
Eric R. Burris
Nury H. Yoo
Albuquerque, NM

for Appellee

Law Offices of Brian A. Thomas, P.C.
Brian A. Thomas
Albuquerque, NM

for Appellants

OPINION

SUTIN, Judge.

{1} Defendants-Appellants Dana and Eugene Romero (collectively, the Romeros) appeal
from an award of summary judgment in favor of Plaintiff-Appellee PNC Mortgage, which

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orders that the foreclosure action against the Romeros proceed. The Romeros argue on
appeal that there are genuine issues of material fact regarding PNC Mortgage’s standing to
enforce the Romeros’ promissory note and to foreclose the mortgage that secured the note.
Because we agree that there are outstanding genuine issues of material fact regarding PNC
Mortgage’s right to enforce the note at the time it filed its complaint and because PNC
Mortgage failed to show that it timely possessed the Romero note as a bearer instrument, we
reverse the district court’s ruling and remand for further proceedings.

BACKGROUND

The Note, the Mortgage, and the District Court Proceedings

{2} In May 2006, the Romeros signed a promissory note (the Romero note) evidencing
a debt in the principal sum of $240,000 to National City Mortgage,1 a division of National
City Bank of Indiana. The Romero note was secured by a mortgage on the Romeros’ home
(the Romero mortgage). The Romeros made the mortgage payments up to and including
January 1, 2010, but thereafter they went into default.

{3} In August 2010, Plaintiff PNC Mortgage, a division of PNC Bank, National
Association, successor by merger to National City Mortgage (NCM), a division of National
City Bank f/k/a National City Bank of Indiana (NCBI), filed a mortgage foreclosure
complaint against the Romeros. PNC Mortgage attached to the complaint a copy of the
unindorsed Romero note (hereinafter, the unindorsed note) that identified NCM, a division
of NCBI, as the lender. PNC Mortgage also attached a copy of the Romero mortgage to the
complaint. The complaint alleged that PNC Mortgage was “the holder of the [m]ortgage .
. . pursuant to a name change/merger with current holder of record.” Neither the complaint
nor the attached documents alleged or showed any details of any successor status or merger.
In September 2010, the Romeros filed an answer to the complaint wherein they alleged the
affirmative defense of lack of standing to sue.

{4} In November 2012, PNC Mortgage filed a motion for summary judgment contending
that it was entitled to judgment because it was the holder of and entitled to enforce the note
and mortgage as stated in an affidavit of Courtney M. Ely (the Ely affidavit). As “a duly
authorized agent of . . . Plaintiff[,]” Ely stated that “PNC [Bank] is the legal holder” of the
Romero note, “a true and correct copy of which is attached to the complaint” and the note
was secured by the mortgage, “a true and correct copy of which is attached to the
[c]omplaint[.]” In its motion, PNC Mortgage stated that its counsel was in possession of the

1
As will be discussed in this Opinion, infra ¶¶ 3, 7, 8, there also existed an entity
named “National City Mortgage Co.”Although PNC Mortgage argues that there is a
difference between National City Mortgage, a division, and National City Mortgage, a
subsidiary, neither party explains the relevance, materiality, or consequences of the
distinction.

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original note and that it was the successor to the originator of the note and mortgage.

{5} In response to the motion for summary judgment, the Romeros asserted that material
issues of fact existed precluding summary judgment. The Romeros denied that PNC
Mortgage was the holder of the note and attacked the Ely affidavit because it lacked a
statement that it was based on personal knowledge, it stated conclusions, and it was
inadmissible hearsay. In addition, the Romeros stated that the note that was attached to the
complaint lacked indorsements and was “order paper,” that there was no documentation of
an assignment of the mortgage, and that nothing supported PNC Mortgage’s claim to be the
successor to the lender through merger, and therefore, PNC Mortgage lacked standing to
foreclose. The Romeros also foreshadowed that PNC Mortgage may offer a “new and
different” version of the note later in the proceedings and warned that allowing a second
version would be unfair and create undue prejudice.

{6} Attached to their response to PNC Mortgage’s motion was an affidavit by Eugene
Romero addressing the Romeros’ attempts to modify their loan and regarding an inquiry into
the owner of their promissory note. Attached to the affidavit was a letter the Romeros
received from PNC Mortgage to their qualified written request to PNC Mortgage under the
Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601 to 2617 (2012). PNC Mortgage’s
letter dated September 27, 2012 (the QWR response letter), stated in relevant part that
“[y]our loan is in a pool known as GSAA 2006-14 and the Trustee is Bank of America . . .;
however, PNC Mortgage is the servicer of your loan and you should continue to contact us
for any concerns regarding your mortgage.” The QWR response letter also stated that “PNC
Mortgage affirms the validity of the debt and requires repayment per the [n]ote and the
[m]ortgage until all debt is paid in full. . . . PNC Mortgage will continue to service the above
referenced loan, and any collection and foreclosure efforts will continue.” In addition, Mr.
Romero attached a letter dated May 17, 2012, from PNC Mortgage that stated “[w]e service
your loan on behalf of an investor or group of investors that has not given us the contractual
authority to modify your loan under the Home Affordable Modification Program.”

{7} In response to the Romeros’ contention that it lacked standing to enforce the note and
to foreclose, PNC Mortgage submitted evidence in the form of certifications from the
secretary of National City Bank/PNC Bank, National Association, and merger
documentation from the Office of the Comptroller of the Currency. The documents showed
that, “[e]ffective July 22, 2006, [NCBI] was acquired by [NCB] and National City Mortgage
Co. became a wholly owned subsidiary of [NCB].” In 2008, “National City Mortgage
Company merged into [NCB] and became a division of [NCB].” The certificate also noted
that NCB, a wholly owned subsidiary of “National City Corporation,” became a wholly
owned subsidiary in 2008 of The PNC Financial Services Group, Inc., when National City
Corporation merged with and into The PNC Financial Services Group, Inc. Effective in
2009, NCB was merged into PNC Bank, National Association, which was a wholly owned
subsidiary of PNC Bancorp, Inc., a wholly owned subsidiary of The PNC Financial Services
Group, Inc. The result of this complicated showing, none of which is contested by the
Romeros, is that, through succession by merger, NCB was merged into PNC Bank in

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November 2009.

{8} Also among PNC Mortgage’s responsive summary judgment documents was a copy
of the Romero note. But unlike the copy of the note that was attached to the complaint, this
copy of the note contained two undated indorsements (hereinafter, the indorsed note). One
indorsement unambiguously stated “Pay to the Order of National City Mortgage Co[.,] a
Subsidiary of National City Bank of Indiana” and was signed by a document control
specialist on behalf of “National City Mortgage[,] a division of National City Bank of
Indiana[.]” The other indorsement, which appears below the foregoing indorsement, stated
“Pay to the Order of [________]” and was signed by the aforementioned document control
specialist on behalf of “National City Mortgage Co[.,] a Subsidiary of National City Bank
of Indiana.” Neither indorsement was dated and neither PNC Mortgage nor the Romeros
offered specific evidence regarding the timing of the indorsements.

{9} Based on its reading of the merger documentation it submitted to support summary
judgment, PNC Mortgage argued that it established a prima facie case that it was in the same
position as the original lender, NCM, and it was in possession of the original note and was
the holder of the note. PNC Mortgage also argued that it was entitled to enforce the note, as
well as the mortgage, because it is “well-settled that the mortgage ‘follows’ the note” as
indicated in NMSA 1978, Section 55-9-203(g) (2005) of New Mexico’s Uniform
Commercial Code (UCC).

{10} The district court specifically determined that PNC Mortgage made a prima facie
showing that it was the holder of the note and entitled to enforce it based on determinations
that PNC Mortgage’s predecessor in interest made the note a bearer instrument and that PNC
Mortgage was in possession of the original note. See NMSA 1978, § 55-1-201(b)(21)(A)
(2005) (stating that “ ‘holder’ means . . . the person in possession of a negotiable instrument
that is payable either to bearer or to an identified person that is the person in possession”).
Thus, the district court agreed that PNC Mortgage had established standing to foreclose and
granted summary judgment in favor of PNC Mortgage.

{11} After the district court granted summary judgment, and after the Romeros filed their
docketing statement with this Court, the Romeros moved for relief under Rule 1-060(B)
NMRA. In their motion, the Romeros argued that our Supreme Court’s decision in Bank of
New York v. Romero, 2014-NMSC-007, 320 P.3d 1, which was decided after the district
court granted summary judgment in favor of PNC Mortgage, held that in order to show
standing, a plaintiff is required “to demonstrate . . . that it had standing to bring a foreclosure
action at the time it filed suit.” Id. ¶ 17. The Romeros also argued that under Romero and
Deutsche Bank National Trust Co. v. Beneficial New Mexico Inc. (Deutsche Bank I), 2014-
NMCA-090, 335 P.3d 217, affirmed in part sub nom. Deutsche Bank National Trust Co. v.
Johnston (Deutsche Bank II), 2016-NMSC-013,___ P.3d ___, PNC Mortgage was required
to show timely ownership of both the note and the mortgage. According to the Romeros,
because PNC Mortgage had not shown that it held or possessed the original note at the time
it filed the complaint and, therefore, lacked standing, summary judgment and the order of

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foreclosure sale should have been deemed void under Rule 1-060(B)(4). The Romeros also
argued that the Ely affidavit offered on behalf of PNC Mortgage during the summary
judgment proceedings was inadmissible hearsay and inappropriately stated legal conclusions.
Finally, the Romeros argued that the existence of the securitized trust, without specific
evidence of PNC Mortgage’s acquisition of the Romero note, created a genuine issue of
material fact.

{12} In response to the Romeros’ motion, PNC Mortgage argued that it was different from
the plaintiffs in Romero because PNC Mortgage was both the successor by merger to the
original payee and, as shown by the Ely affidavit, the holder of the Romero note. PNC
Mortgage asserted that Romero and its progeny were distinguishable because, unlike the
Romero plaintiffs, PNC Mortgage had a right to enforce the note by virtue of its merger with
NCBI. PNC Mortgage further argued that the Ely affidavit properly asserted Ms. Ely’s
opinions and did not constitute hearsay. PNC Mortgage also asserted that ownership of the
note was irrelevant to standing.

Arguments on Appeal

{13} On appeal, the Romeros contend that PNC Mortgage failed to prove it had standing
and that, “at a minimum, a trial on the merits rather than summary judgment” is proper. The
Romeros first argue that PNC Mortgage did not have standing to bring this foreclosure
action because the unindorsed note attached to the complaint indicated that it was payable
to NCM, a division of NCBI, and PNC Mortgage failed to provide any evidence confirming
its right to enforce the Romero note as a successor in interest. The Romeros do not dispute
that PNC Mortgage established that it is the corporate successor to NCM, but the Romeros
dispute that this fact alone establishes a specific interest in the note or the mortgage required
to establish standing. The Romeros specifically highlight the fact that PNC Mortgage failed
to produce any documentation that accounted for each time the note and mortgage changed
hands, including during each bank merger.

{14} The Romeros also argue that the two different copies of the Romero note indicate
that PNC Mortgage lacked standing when it filed the foreclosure complaint because the note
that came to light during the summary judgment proceedings, the indorsed note, does not
indicate that the added indorsements were executed prior to the filing of the complaint or that
PNC Mortgage had possession of the indorsed note and was the holder at the time it filed its
complaint. Thus, according to the Romeros, providing the indorsed note during the course
of litigation was inadequate to show possession of the indorsed note at the time the
foreclosure suit was filed.

{15} In addition, the Romeros point out that, after the filing of the complaint, PNC
Mortgage’s QWR response letter stated the loan was owned by a securitized trust entitled

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GSAA 2006-14 and that PNC Mortgage was merely the servicer of the note.2 The Romeros
mention that the effective date of a trust usually appears in the name of the trust, in this case
2006, and that the trust here “would most likely have accepted assets . . . (usually [thirty to
ninety] days) after the effective date of the trust.” Inferring that the trust would have closed
by early 2007 and that the merger did not close until after 2007, the Romeros conclude that
PNC Mortgage could not have been successor to the original lender by merger. From these
circumstances, the Romeros argue that “[t]he strong inference here is that the [n]ote and the
[m]ortgage were transferred to the GSAA 2006-14 trust during the 2006 window, and then
either the [n]ote or the [m]ortgage (or both) was transferred back to [PNC Mortgage], in its
role as servicer for the GSAA 2006-14 trust at some point thereafter.” Thus, according to the
Romeros, “[PNC Mortgage] has been unable to make a convincing, logical case as to when
and if the rights under the [n]ote were negotiated (in UCC parlance) and the rights under the
[m]ortgage were transferred to the GSAA 2006-14 trust as principal (with servicing rights
retained by [PNC Mortgage]),” thereby resulting in a failure of PNC Mortgage’s claim of
standing. Therefore, according to the Romeros, material issues of fact exist as to whether
PNC Mortgage owned, or was the holder or in possession of, either the note or mortgage,
when PNC Mortgage filed the foreclosure complaint.

{16} In addition to the deficiencies regarding the note, the Romeros argue that PNC
Mortgage failed to show ownership of the Romero mortgage by virtue of an assignment of
mortgage, and thus, PNC Mortgage failed to prove standing.

DISCUSSION

Standard of Review

{17} “The [summary judgment] movant need only make a prima facie showing that he is
entitled to summary judgment. Upon the movant making a prima facie showing, the burden
shifts to the party opposing the motion to demonstrate the existence of specific evidentiary
facts which would require trial on the merits. On review, [the appellate courts] consider the
whole record for evidence that puts a material fact at issue. If the facts are not in dispute, and
only their legal effects remain to be determined, summary judgment is proper.” Roth v.
Thompson, 1992-NMSC-011, ¶ 17, 113 N.M. 331, 825 P.2d 1241 (citations omitted). “An
appeal from the grant of a motion for summary judgment presents a question of law and is
reviewed de novo.” Montgomery v. Lomos Altos, Inc., 2007-NMSC-002, ¶ 16, 141 N.M. 21,
150 P.3d 971. The appellate courts review the facts “in the light most favorable to the party
opposing summary judgment, drawing all inferences in favor of that party.” Gormley v.

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A loan servicer is generally “responsible for processing payments and supervising
any resulting foreclosure or workout.” Richard H. Martin, Proving Standing to Foreclose
a Florida Mortgage, 85 Fla. B.J. 31 (Dec. 2011). However, neither party provided a pooling
and servicing agreement or any other documentary evidence that might describe the rights
and obligations of PNC Mortgage versus the rights and obligations of the securitized trust.

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Coca-Cola Enters., 2005-NMSC-003, ¶ 8, 137 N.M. 192, 109 P.3d 280 (internal quotation
marks and citation omitted).

Standing

{18} At the time that this case was briefed and argued before this Court, standing in
foreclosure cases had been articulated as a jurisdictional prerequisite that “may not be
waived and may be raised at any stage of the proceedings, even sua sponte by the appellate
court.” Romero, 2014-NMSC-007, ¶ 15 (internal quotation marks and citation omitted);
Flagstar Bank, FSB v. Licha, 2015-NMCA-086, ¶ 13, 356 P.3d 1102. However, our
Supreme Court recently issued its opinion in Deutsche Bank II, 2016-NMSC-013, ¶ 9,
wherein the Court took the opportunity “to clarify that standing is not a jurisdictional
prerequisite in mortgage foreclosure cases in New Mexico[.]” According to our Supreme
Court, only prudential rules of standing apply in such cases. Id. ¶¶ 10, 12. The Court
recognized that under the prudential rules, a litigant is generally required to demonstrate
“injury in fact, causation, and redressability to invoke the [district] court’s authority to
decide the merits of a case.” Id. ¶ 13 (internal quotation marks and citation omitted). To
effectively show a direct and concrete injury, the Court stated that a party seeking to enforce
a promissory note must establish that it has the right to enforce the note under the UCC. Id.
¶ 14; see also NMSA 1978, § 55-3-301 (1992). Finally, the Court stated that “[a]rguments
based on a lack of prudential standing are analogous to asserting that a litigant has failed to
state a legal cause of action[,]” and “issues of prudential standing [cannot be waived] prior
to the completion of a trial on the merits.” Deutsche Bank II, 2016-NMSC-013, ¶ 16; see
also Rule 1-012(H)(2) NMRA (“A defense of failure to state a claim upon which relief can
be granted . . . may be made in any pleading permitted or ordered . . . or by motion for
judgment on the pleadings, or at the trial on the merits.”).

{19} After changing the test from a jurisdictional one to a prudential one, the Court in
Deutsche Bank II firmly stood with Romero’s determination that a party seeking to foreclose
is “required to demonstrate under [the UCC] that it had standing to bring a foreclosure action
at the time it filed suit.” Romero, 2014-NMSC-007, ¶ 17; see Deutsche Bank II, 2016-
NMSC-013, ¶¶ 20-23. Thus, to demonstrate standing on a prudential basis, the foreclosing
party “must demonstrate that [it] had the right to enforce the note and the right to foreclose
the mortgage at the time the foreclosure suit was filed.” Phoenix Funding, LLC v. Aurora
Loan Servs., LLC, 2016-NMCA-010, ¶ 15, 365 P.3d 8, cert. granted, 2016-NMCERT-001,
365 P.3d 8; Deutsche Bank I, 2014-NMCA-090, ¶ 8.3 It remains clear that a party seeking

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Romero states that a party seeking to foreclose must establish “timely ownership”
of the note and mortgage, 2014-NMSC-007, ¶ 17, however, reading the Romero opinion as
a whole, we believe the Supreme Court’s mention of ownership was not intended to legally
distinguish that concept from status as a holder of a negotiable instrument under the UCC.
The proper inquiry is therefore whether said party is the holder, not the owner. See § 55-3-
301 (“A person may be a person entitled to enforce the instrument even though the person

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to prove standing must show that it had the right to enforce the note at the time it filed its
complaint. Deutsche Bank II, 2016-NMSC-013, ¶¶ 20-27. Because we reverse on the issue
of the right to enforce the note, we need not address the Romeros’ argument regarding the
right to foreclose the mortgage.

PNC Mortgage’s Right to Enforce the Note

{20} According to New Mexico law, a promissory note is a negotiable instrument, NMSA
1978, § 55-3-104(a), (b), (e) (1992), that can be enforced by “(i) the holder of the instrument,
(ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a
person not in possession of the instrument who is entitled to enforce the instrument pursuant
to [certain provisions of the UCC].” Section 55-3-301; Phoenix Funding, 2016-NMCA-010,
¶ 16. The holder of the note is “the person in possession of a negotiable instrument that is
payable either to bearer or to an identified person that is the person in possession[.]” Section
55-1-201(b)(21)(A). The bearer is “a person in possession of a negotiable instrument . . . that
is payable to bearer or indorsed in blank[.]” Section 55-1-201(b)(5).

{21} We turn to PNC Mortgage’s argument that either the indorsed note provided during
summary judgment proceedings or the unindorsed note attached to the complaint provided
standing.

A. The Indorsed Note

{22} PNC Mortgage argues that the indorsed note provides a basis for standing because
PNC Mortgage was in possession of a bearer instrument and thus had the right to enforce the
note. This argument was accepted by the district court and served as the basis for granting
summary judgment to PNC Mortgage. According to the district court, PNC Mortgage’s
predecessor in interest made the note a bearer instrument by indorsing it in blank, and PNC
Mortgage was in possession of that original note. The district court therefore held that PNC
Mortgage thereby established a prima facie case of its right to enforce the note and had
established standing.

is not the owner of the instrument[.]”); NMSA 1978, § 55-3-110(c)(2) cmt. 3 (1992) (“This
provision merely determines who can deal with an instrument as a holder. It does not
determine ownership of the instrument or its proceeds.”); Application of the Uniform
Commercial Code to Selected Issues Relating to Mortgage Notes, at 8 (Am. Law Inst. &
Unif. Law Comm’n Nov. 14, 2011) (“The rules that determine whether a person is entitled
to enforce a note do not require that person to be the owner of the note, and a change in
ownership of a note does not necessarily bring about a concomitant change in the identity
of the person entitled to enforce the note. . . . The rules concerning transfer of ownership and
other interests in a note . . . primarily relate to who, among competing claimants, is entitled
to the economic value of the note.” (footnote omitted)).

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{23} “A blank indorsement . . . does not identify a person to whom the instrument is
payable but instead makes it payable to anyone who holds it as bearer paper.” Romero, 2014-
NMSC-007, ¶ 24. In general, a person or entity in possession of a bearer instrument is
considered a holder, and a holder of a bearer instrument is entitled to enforce its terms.
Section 55-1-201(b)(21)(A) (defining “holder” under the UCC); § 55-3-301 (“ ‘Person
entitled to enforce’ an instrument means (i) the holder of the instrument [or] (ii) a nonholder
in possession of the instrument who has the rights of a holder . . . . A person may be a person
entitled to enforce the instrument even though the person is not the owner of the
instrument[.]”).

{24} Here, the indorsed note contained two indorsements—a special indorsement and an
indorsement in blank. Although neither indorsement is dated, the parties appear to agree that
had PNC Mortgage been able to prove timely possession of the indorsed note, it would
defeat the Romeros’ standing claim. However, the Romeros argue that production of the
document is insufficient to prove PNC Mortgage’s right to enforce at the time the complaint
was filed, as required by Romero. We agree.

{25} PNC Mortgage failed to establish that it had a right to enforce the indorsed note. The
note came to light years after PNC Mortgage filed its complaint. There exists no evidence
that at the time it filed its complaint, PNC Mortgage possessed the original of the indorsed
note. Moreover, there exists no evidence as to the date of the indorsements on the indorsed
note. As indicated in Phoenix Funding, “where an indorsed note is not produced until after
the plaintiff has filed for foreclosure and the indorsement is undated, the indorsement is
insufficient to show that the plaintiff was the holder of that note at the time the foreclosure
complaint was filed.” 2016-NMCA-010, ¶ 20; see also Deutsche Bank II, 2016-NMSC-013,
¶¶ 24-25 (holding that although an undated indorsement does not impact the validity of the
note, presenting an undated indorsed note after the complaint is filed does not prove that a
party seeking to foreclose possessed the blank note when it filed suit).

{26} Although we hold that PNC Mortgage failed to prove its prima facie case based on
the indorsed note, we believe that it is important to mention that Romero did not exist at the
time the district court issued its order granting summary judgment and thus the timeliness
requirement enumerated in Romero was not before the district court in this case. The test for
establishing standing in foreclosure actions evolved dramatically during the pendency of this
appeal. Our Supreme Court issued Romero two months after the filing of the docketing
statement in this case. Romero definitively stated that a party seeking to foreclose must, as
a matter of standing, establish its right to foreclose at the time the complaint is filed. This
was not a clearly articulated standard at the time the district court ruled on PNC Mortgage’s
motion for summary judgment. The Romeros alerted the district court to Romero in a motion
for post-judgment relief. However, the motion was filed after the case had been appealed to
this Court and after the parties had notified this Court of Romero in memoranda in the
calendaring process. The record on appeal does not contain the district court’s order on the
motion for post-judgment relief and neither party made a transcript or disc of the hearing
available to this Court on appeal. Due to the fact that the appeal continued, we assume that

9
the motion was denied. On appeal, PNC Mortgage does not argue that Romero is not
applicable. Therefore, in view of Romero, the district court’s analysis was deficient.

B. The Unindorsed Note

{27} PNC Mortgage also argues that it has standing to enforce the Romero note because
the unindorsed note, a copy of which was attached to the complaint, was payable to PNC
Mortgage’s predecessor in interest. PNC Mortgage argues that it is thus entitled to enforce
the note because, as a successor in interest and a holder of the note, it had all of the rights
of its predecessor in interest.

{28} As indicated earlier, a holder of a note and a nonholder in possession of a note with
the rights of a holder have the right to enforce the note. See § 55-3-301. Our Supreme Court
clarified in Romero, however, that in order to enforce a note made payable to a third party,
a successor must prove that it has both physical possession of the note as well as the right
to enforce it through a proper indorsement or transfer via negotiation. 2014-NMSC-007, ¶
21 (holding that “a third party must prove both physical possession and the right to
enforcement through either a proper indorsement or a transfer by negotiation” and
referencing the definition of “negotiation” contained in Section 55-3-201(a)). Mere
possession of a note payable to a third party is therefore insufficient. See Romero, 2014-
NMSC-007, ¶ 23 (“Possession of an unindorsed note made payable to a third party does not
establish the right of enforcement, just as finding a lost check made payable to a particular
party does not allow the finder to cash it.”); see also Deutsche Bank II, 2016-NMSC-013,
¶ 32 (same). Romero therefore requires that a successor in interest seeking to establish its
right to foreclose provide some evidence of a proper indorsement or transfer via negotiation
as part of its prima facie case. According to our Supreme Court, “the minor up-front
compliance costs that foreclosure plaintiffs will incur by confirming that they have the
proper documentation before filing suit are a small price to pay for protecting the rights of
New Mexico homeowners and the integrity of the State’s title system by requiring strict and
timely compliance with long-standing property law requirements.” Deutsche Bank II, 2016-
NMSC-013, ¶ 22.

{29} In support of its claim that it was a holder of the unindorsed note, PNC Mortgage
offered the Ely affidavit stating that “PNC is the legal holder of a Promissory Note (‘Note’)
dated May 02, 2006, and executed by Dana Romero and Eugene Romero, in the original
principal sum of $240,000.00[.]” The Romeros argue that the Ely affidavit failed to
accomplish its apparent purpose to establish as an undisputed fact that PNC Mortgage had
standing.

{30} We give little weight to the Romeros’ appellate attack because the Romeros do not
point out where in the district court proceedings they sought to strike the Ely affidavit. See
Chavez v. Ronquillo, 1980-NMCA-069, ¶¶ 19-20, 94 N.M. 442, 612 P.2d 234 (“A party
must move to strike an affidavit that violates Rule [1-056(E) NMRA].”). However, we do
note that the statement that PNC Mortgage is the “holder” of the note is undoubtedly a legal

10
conclusion. An affidavit submitted in support of a motion for summary judgment “shall set
forth such facts as would be admissible in evidence[.]” Rule 1-056(E). Testimony by a lay
witness “that seeks to state a legal conclusion is inadmissible.” State v. Clifford, 1994-
NMSC-048, ¶ 20, 117 N.M. 508, 873 P.2d 254; State v. Elliott, 2001-NMCA-108, ¶ 22, 131
N.M. 390, 37 P.3d 107. We also note that the Ely affidavit is of questionable value given the
lack of evidence in support of the statement that PNC Mortgage was and is a “holder.” We
hold that the affidavit has no impact as to this Court’s decision regarding standing.

{31} PNC Mortgage also argues that because it is a successor in interest, as a matter of
law, it had NCBI’s right to enforce the unindorsed note. PNC Mortgage bases its argument
on the listing of the mergers set out in certifications from the secretary of National City Bank
and PNC Bank and in merger documentation from the Office of the Comptroller of the
Currency presented to the district court. PNC Mortgage also relies on a provision in the
National Bank Act that provides:

All rights, franchises, and interests of the individual merging banks or
banking associations in and to every type of property (real, personal, and
mixed) and choses in action shall be transferred to and vested in the receiving
association by virtue of such merger without any deed or other transfer. The
receiving association, upon the merger and without any order or other action
on the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises, and interests[.]

12 U.S.C. § 215a(e) (2012).

{32} The Romeros argue that, while the National Bank Act offers “a plausible scenario”
showing how the note “could be enforceable under applicable statutes and case law[,]” that
“scenario . . . must yield when the actual facts contradict that story.” The Romeros point to
the “timeline of events” relating to the note, the QWR response letter, the existence of the
securitized trust, the mergers, the foreclosure complaint, and the later-indorsed note
appearing in summary judgment proceedings, all showing that PNC Mortgage was likely not
the holder of the unindorsed note when it filed its complaint. The Romeros also argue that
while the merger history may have shown PNC Mortgage as successor to the corporate entity
originating the loan, “it does not show how or whether that succession included any interest
in the subject [n]ote or [m]ortgage.” And the Romeros argue that a reasonable inference can
be drawn that the note and mortgage were transferred to the trust before the merger.

{33} The Romeros contend that, altogether, genuine issues of material facts exist as to
whether PNC Mortgage possessed and was holder of the unindorsed note at the time the
complaint was filed. The Romeros emphasize that because the securitized trust includes
“2006” in its name, because the effective date of the trust is usually in the name of the trust,
and because trusts typically close thirty to ninety days after the effective date, it is likely that
the trust accepted the Romero note in 2006 or early 2007. Because PNC Mortgage did not
merge with the Romeros’ lender until 2008, the Romeros argue that there is a strong

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inference that PNC Mortgage was not the successor to the original lender. According to the
Romeros, in failing to document the critical chain of events of transfer of the note to PNC
Mortgage or to the trust, PNC Mortgage left a “muddled story of chain of title,” which
created sufficient doubt and confusion with irregularities and material facts in dispute to
preclude summary judgment in PNC Mortgage’s favor.

{34} We agree that the lack of information regarding the transfer of the unindorsed note
creates genuine issues of material fact as to whether PNC Mortgage was the holder of the
unindorsed note at the time of filing of the complaint. There is nothing in the record to show
that PNC Mortgage offered evidence to confirm that the Romero note was included in the
merger. In fact, there is a noticeable lack of documents actually showing that PNC Mortgage
received the unindorsed note and had it in hand at the time PNC Mortgage filed the
complaint. Before the indorsed note appeared, the records contained only a copy of the
unindorsed note attached to the complaint and a copy of letters from PNC Mortgage stating
that the loan was owned by a securitized trust. With the limited available information, it is
possible that the unindorsed note came to PNC with the merger documentation. However,
it is also possible that the securitized trust was the holder of (or otherwise in possession of)
the unindorsed note at the time the complaint was filed. Although we do not believe that the
QWR response letter, which states that the securitized trust “owned” the loan, wholly
negates PNC Mortgage’s claim of timely possession, it does raise genuine issues of material
fact regarding what rights and responsibilities were retained by PNC Mortgage or its
predecessor in interest during the sale or transfer of the loan and whether the timing of any
sale or transfer interfered with PNC Mortgage’s interest.

{35} We note that the existence of a securitized trust does not automatically prohibit a
party other than the trust from having a right to enforce a note. It is important to differentiate
between the owner of a securitized loan, which is the investor having the right to the
economic benefits of the note such as the proceeds from foreclosure, and the entity with the
right to enforce the note against the borrower. See supra, n.3. PNC Mortgage may have been
able to establish a right to enforce the unindorsed note had it shown documentation
confirming what entity had possession of it through negotiation or transfer at the time of
filing the complaint.

CONCLUSION

{36} PNC Mortgage failed to prove standing as to the indorsed note. Genuine issues of
material fact exist regarding PNC Mortgage’s right to enforce the unindorsed note at the time
it filed the complaint. For the reasons set forth in this Opinion, we reverse the district court’s
order granting summary judgment and remand the case for further proceedings.

{37} IT IS SO ORDERED.

____________________________________
JONATHAN B. SUTIN, Judge

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WE CONCUR:

_______________________________
MICHAEL E. VIGIL, Chief Judge

_______________________________
RODERICK T. KENNEDY, Judge

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