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Copyright © 2014 Albuquerque Journal
A Chimayó couple battling for six years to save their modest home from foreclosure has won a significant victory at the New Mexico Supreme Court, which overturned both district and appeals court rulings.
The high court ordered the foreclosure vacated in a ruling one of their lawyers described as nationally important.
Lawyers for Joseph and Mary Romero maintained lenders had taken advantage of their limited education, using predatory lending practices to structure a loan that would strip them of their equity and with no regard for their ability to pay off the loan.
“A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable,” Justice Charles Daniels wrote in a 19-page unanimous opinion issued Thursday by the Supreme Court.
Daniels added that a “full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into materially worse situation.”
“This is a landmark decision for the United States,” said Daniel Yohalem, one of the attorneys who argued the case before the Supreme Court for the Romeros. “Only a handful of courts have considered these issues, and have come out clearly and forcefully for protecting these people from lenders and banks.”
The Romeros had responded to a cold call solicitation in 2006 and refinanced their house with an inflated mortgage without the lender requiring proof of income or assets. They were soon behind on their payments – his annual income was about $5,600 – and, in 2008, the Bank of New York filed for foreclosure.
Yohalem said the Supreme Court’s ruling was a “total victory” for the couple.
“The opinion spelled out the tough standards banks must meet to have standing to initiate foreclosures, it discredited all the bogus ‘evidence’ submitted in this case, it established strong principles for homeowner protection from unscrupulous lenders, and it was a total victory for the Romeros who get to continue to live in their home,” Yohalem said.
Attorneys for the lenders involved in the case said they couldn’t comment without approval from their client.
Neither could the Romeros themselves, although Yohalem said they are “extremely happy.”
In 2010, Joseph Romero told the Journal, “Forty years of hard work, bloodshed and tears, and then to lose it to a bank that betrays you, that misleads you on a loan … I believe they had intentions of snatching our home from under our feet.”
The state Home Loan Protection Act, enacted in 2003 in response to growing state and national complaints about subprime lenders, prohibits mortgage refinancing that does not provide a “reasonable, tangible net benefit to the borrower.”
The Supreme Court cited the law in its opinion Thursday. Addressing the HPLA’s requirements, Daniels wrote that “it is difficult to comprehend how an unrepayable home mortgage loan that will result in 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.'”
After the Bank of New York filed for foreclosure on the Romeros in 2008, the district court ruled in favor of the bank and the Court of Appeals upheld the district court in 2011.
The Romeros signed their names to a lender-prepared document saying that it provided them with a real benefit, based on the $30,000 cash payout they could receive. But the Supreme Court said that “boilerplate language in the mass of documents” are just empty words if there is no compliance with the Home Loan Protection Act.
“Borrowers are certainly not blameless if they try to refinance their homes through loans they cannot afford,” the court said, “but they do not have a mortgage lender’s expertise.”
That combination of unsophisticated borrowers and some unscrupulous lenders is what led to the statutory reform, the court noted.
The case drew substantial statewide interest. The New Mexico Bankers Association urged the high court to follow the lower court rulings upholding foreclosure.
A brief for a broad range of groups, from the Hispanic Bar and the Archdiocese of Santa Fe to a home builders group and a nonprofit that defends homeowners in foreclosures, pointed the court to the thousands of pending foreclosures in New Mexico and the opportunity for the court to set clear rules for foreclosing parties.
The consumer division of the New Mexico Attorney General’s Office also weighed in, as did the Santa Fe Neighborhood Law Center, which called the loan “a wild home mortgage refinancing loan based on no appraisal and no verification.”
The Bank of New York served as trustee for Popular Financial Services, but the Supreme Court found the Bank of New York had no standing to file for foreclosure. Attorneys for the Romeros argued nothing in the foreclosure complaint established how the bank became holder of the note.
The Romeros have said they took the loan in 2006 to pay off the mortgage on their home and to start a business. They also wanted the loan to pay off other debt, and put money in their music and clothing store in Española. The couple admitted that they did not read the note or the mortgage contracts thoroughly, claiming they were given a few days to review them, the documents were complex and they were limited by their own knowledge of such matters.
The Supreme Court stated in its opinion that the loan was not an improvement over the couple’s prior home loan. While they were paying 7.71 percent interest rate with the original loan, the new loan started at 8.1 percent interest and could increase to 14 percent. The Romeros’ monthly payments increased from $1,256 to $1,683, and the loan amount was greater, $227,240 compared to $176,450.
The court noted, however, that the couple would have received a cash payout of nearly $43,000, which would cover the new closing cost and provide them with about $30,000 to pay off their other debt.
The Romeros alleged they were told that the loan payments would go down to $1,000 in six months, but they never got a statement verifying that.
Court documents also suggest that Joseph Romero made a mistake by stating his estimated monthly income was $5,600, when he actually meant that amount was his estimated annual income. By the end of 2007, the Romeros owed more than $8,000 in payments and fees on that loan and, four months later, the Bank of New York, which held the mortgage, filed for foreclosure.