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Federal National Mortgage Association v. Chiulli

Court of Appeals of New Mexico

June 27, 2018

STEPHEN CHIULLI, Defendant-Appellee.

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

          Rodey, Dickason, Sloan, Akin & Robb, P.A. Edward Ricco Charles J. Vigil Charles R. Hughson Albuquerque, NM for Appellant

          Walcott, Henry & Winston, P.C. Donald A. Walcott Charles V. Henry, IV Santa Fe, NM for Appellee



         {¶1} In this case the district court dismissed the complaint to foreclose on a note and mortgage brought by Sun Trust Mortgage, Inc. (SunTrust) "with prejudice" as a discovery sanction. An appeal from the order of dismissal with prejudice was taken but then abandoned. In subsequent proceedings brought by the borrower, Stephen Chiulli, to enforce the order, the district court explained that when it dismissed the foreclosure complaint "with prejudice" it intended to extinguish all rights SunTrust had under the note and mortgage. The district court therefore ordered that no further action could be taken to enforce the note and mortgage. Federal National Mortgage Association (Fannie Mae), who was substituted for SunTrust as the plaintiff, appeals. Concluding that the district court's interpretation of its order of dismissal with prejudice was not manifestly unreasonable, we affirm.


         {¶2} SunTrust filed a complaint for foreclosure on Chiulli's home. Contemporaneously with the complaint, SunTrust filed notice that Chiulli's debt under the promissory note was discharged in a Chapter 7 case in the United States Bankruptcy Court of the District of New Mexico. Therefore, no claim was made against Chiulli personally under the note, and the complaint only sought an in rem judgment against the property itself to satisfy the amounts claimed under the note and mortgage. See Kepler v. Slade, 1995- NMSC-035, ¶¶7-8, 119N.M.802, 896P.2d482 (explaining that in the event of default on an underlying note, the mortgagee has independent remedies to sue on the note or in rem against the mortgaged property to satisfy the indebtedness); State v. Nunez, 2000-NMSC-013, ¶78, 129N.M. 63, 2P.3d 264 (explaining that "[a]n in rem action is directed ... at resolving the interests, claims, titles, and rights in that property[, ]" and is in "contradistinction to 'in personam' actions which are directed against a person." (emphasis added)).

         {¶3} SunTrust's standing was in issue at the outset of the litigation. Although the lender on the note was Attessa Enterprises, Inc., dba Crescent Financial Solutions (Attessa) and the mortgage was in favor of Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for the lender, SunTrust alleged it was entitled to enforce the note and mortgage by virtue of assignments attached to the complaint. Chiulli denied the note and mortgage had been properly assigned, and affirmatively alleged that SunTrust lacked standing to bring the suit. Chiulli also filed counterclaims against SunTrust for slander of title, breach of contract, breach of the covenant of good faith and fair dealing, interference with contractual relations, fraud, violation of the Unfair Practices Act, violation of the Fair Credit Reporting Act, and violation of the Fair Debt Collection Practices Act, which materially relied on his allegations that the alleged assignment of the mortgage to SunTrust was made by SunTrust to itself, was improper and ineffective, and that the promissory note was not indorsed.

         {¶4} Chiulli sought discovery from SunTrust seeking information and documentation regarding the note and mortgage as well as the assignment of the loan and mortgage from Attessa to SunTrust. SunTrust objected to these discovery requests and produced no documentation concerning the note and mortgage, or the assignment of the loan from Attessa to SunTrust. Chiulli filed a motion to compel SunTrust to answer the discovery requests, which district court Judge Sarah M. Singleton granted. Judge Singleton ruled that the discovery requests were clearly relevant to the standing of SunTrust to bring the suit, and ordered SunTrust to answer interrogatories and produce documents. Specifically, Judge Singleton ordered SunTrust to answer interrogatories to identify and provide contact information for people with knowledge of the loan and mortgage; to answer the dates of employment of the person who signed the assignment of mortgage and verified the interrogatories; to identify the person responsible for directing and having the assignment of mortgage prepared; to identify the person responsible for filing the assignment of mortgage; to identify the person at the original lender who authorized transfer of the loan; and to provide information about the person at MERS who authorized the transfer of the loan from the original lender. In addition, SunTrust was ordered to produce all of its files on the loan; and all contracts, agreements, correspondence, or communications between Sun Trust and Attessa regarding the loan.

         {¶5} After the deadline imposed by Judge Singleton to answer the interrogatories passed, SunTrust filed a motion seeking a sixty-day extension of time to comply. Chiulli's response included a motion for sanctions, including a dismissal of SunTrust's claims with prejudice on the basis that although it had sufficient time to do so, SunTrust had still not provided the discovery in violation of the court's order. SunTrust did not respond to Chiulli's motion, and Judge Singleton granted Chiulli's motion. Ruling that Chiulli's unanswered interrogatories and requests for production "go to the substance" of the claims made by SunTrust, Judge Singleton ordered that the complaint for foreclosure filed by SunTrust "is hereby dismissed with prejudice" and that the affirmative defenses asserted by SunTrust against Chiulli's counterclaims "are hereby dismissed." The order also voided assignments of the mortgage to SunTrust and Fannie Mae. The effect of this order, filed on September 18, 2014, was that SunTrust's claims against Chiulli were dismissed "with prejudice" but SunTrust remained in the case as counter-defendant on Chiulli's counterclaims.

         {¶6} SunTrust through new counsel, filed a motion for relief from the order granting Chiulli's motion for sanctions in dismissing SunTrust's complaint with prejudice and striking its affirmative defenses to Chiulli's counterclaims. After full briefing and a hearing, Judge Singleton entered an order denying SunTrust's motion. Judge Singleton did, however, rule that the original order, should not have voided assignments of the mortgage to SunTrust and Fannie Mae. An amended order making this correction was filed on March 18, 2015.

         {¶7} While SunTrust's motion for relief was pending, SunTrust filed a motion on January 15, 2015, to substitute Seterus, Inc. (Seterus) as the plaintiff in the case. In support of the motion SunTrust stated that when it filed the complaint for foreclosure, it did so as the "servicer" for the owner of the mortgage, Fannie Mae. However, while the suit was pending, Fannie Mae purchased the servicing rights to Chiulli's loan and then transferred the servicing rights to Seterus. As a consequence, SunTrust asserted, "Seterus or Fannie Mae should have substituted" as the plaintiff, which had not occurred. At the hearing on the motion on January 23, 2015, SunTrust orally amended the motion to substitute Fannie Mae as plaintiff. With Fannie Mae's consent, and its agreement to be bound by the earlier order dismissing the complaint with prejudice, the motion was granted in an order filed on March 12, 2015. SunTrust remained in the case as counter-defendant to Chiulli's counterclaims. The parties subsequently stipulated to a dismissal of Chiulli's counterclaims with prejudice, with the result that all the claims in the case were either resolved or dismissed.

         {¶8} Fannie Mae filed a timely notice of appeal on June 5, 2015, appealing from the order on sanctions dismissing the complaint for foreclosure with prejudice. However, Fannie Mae did not file a docketing statement with this Court and abandoned its appeal.

         {¶9} This was not the end of the case. Chiulli filed a motion for post-judgment relief on September 24, 2015, asserting that Fannie Mae was violating the order dismissing the complaint for foreclosure with prejudice filed on September 18, 2014, and reaffirmed in the amended order filed on March 18, 2015. The motion alleged: (1) that Fannie Mae, through Seterus sent Chiulli past due account statements in February, March, April, May, June, and July, 2015; (2) that the July statement showed a total amount due in the amount of $87, 796.77 as of August 1, 2015; (3) that Chiulli did not know if Fannie Mae or Seterus was reporting a delinquency to credit reporting agencies; (4) that Chiulli attempted to pay taxes on the property, but was told that they were already paid and would not be assessed again until November 2015; (5) that Chiulli received an escrow statement showing that Fannie Mae had paid taxes on the property in May 2015, and according to the statement, Seterus intended to pay the taxes due in November 2015; (6) that Chiulli had obtained his own insurance on the property; and (7) that Chiulli did not know if Fannie Mae intended for Seterus to purchase insurance on the residence. ...

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