IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

1
Opinion Number:

________________ 2

F iling Date: December 28 , 2018 3

NO . A

- 1

- CA

- 36014 4

LSF9 MASTER PARTICIPATION TRUST , 5

P laintiff

- Appell an t , 6

v. 7

JOANN SANCHEZ and FRANK 8 F. SANCHEZ , 9

Defendant s

- Appellees, 10

and 11

WELLS FARGO BANK, N.A. BY 12 MERGER WITH WELLS FARGO 13 FINANCIAL BANK, and CANVASBACK 14 FINANCIAL SERVICES, LLC, 15

Defendants

. 16

APPEAL FROM THE DISTRICT COURT OF DOÑA ANA COUNTY 17 Mary W. Rosner , District Judge 18
McCarthy & Holthus, LLP 19 Joshua T. C happell 20 Karen Weaver 21 Albuquerque, NM 22
for Appellant 23

24Eric Ortiz & Associates

1 Eric N. Ortiz 2 Albuquerque, NM 3
for Appellees 4OPINION

1

VIGIL , Judge. 2

{1} Wells Fargo (Bank) appealed from the district court’s order dismissing its 3
foreclosure action against Joann and Frank Sanchez (Homeowners) with prejudice. 4
During the pendency of the appeal, and after briefing was completed, Bank filed a 5

motion to substitut e LSF9 Master Participation Trust (LSF9) as appellant in the 6
case, which we granted. LSF9 raised no new claims after our order of substitution, 7
and as such, we address the arguments raised by Bank. Bank ma de two arguments 8
on appeal: (1) the district court erred in dismissing its entire foreclosure claim as 9
barred by the applicable statute of limitations, NMSA 1978, § 37

- 1

- 3 (A) (2015); 10
and (2) the district court abused its discretion in denying Bank leave to amend its 11
complaint to plead the tolling effect on the statute of limitations of Homeowners’ 12
three bankruptcy cases. We reverse. 13

BACKGROUND 14

{ 2 } The material facts are not in dispute. On October 30, 2007, Homeowners 15
executed a note and mortgage to secure a $203,669.41 loan. The mortgage was 16
secured by real property located in Las Cruces , New Mexico . The note and 17
mortgage provided for periodic payments in the amount of $1,712.55 to be paid on 18
the fourth day of every month beginning on December 4, 2007. The note and 19
mortgage also contained acceleration clause s, providing that in the event of default, 20
Bank “may require [Homeowners] to pay immediately the full amount of 212

[p]rincipal which has not been paid and all the interest that [Homeowners] owe on 1

that amount.” 2

{ 3 } Homeowner defaulted on the loan on October 4 , 2008. Bank filed a 3
foreclosure action against Homeowners on October 7, 2009. In this action, Bank 4
asserted that it was exercising its option under the note to accelerate and declare 5
immediately payable and due the full amount of principal and all interes t still owed 6

under the note. 7

{ 4 } On June 21, 2011, during the pendency of the first foreclosure action, 8
Homeowners filed for Chapter 13 bankruptcy, which was dismissed without 9
prejudice on August 18, 2011
, for failure to file information. Homeowners filed a 10
second bankruptcy under Chapter 13 on November 17, 2011, which was dismissed 11
for failure to make plan payments on June 15, 2012. During the pendency of the 12
second bankruptcy, Bank voluntarily dismissed the first foreclosure action on 13

March 20, 2012. Hom eowners thereafter filed a third bankruptcy under Chapter 7 14
on August 21, 2012, which resulted in a discharge ord er entered on January 23, 15

2013. 16

{ 5 } On February 22, 2016, Bank filed its second, and the currently operative, 17
foreclosure action against Homeow ners stemming from Homeo wners’ October 4, 18

2008 default. Bank alleged in the complaint that its claim was for the accelerated 19
unpaid balance and that it had sent Homeowners a notice of default and a demand 203

letter on August 28, 2015, requesting Homeowners cu re of the default. Although 1
not specifically alleging Homeowners’ three bankruptcy cases, Bank only sought 2

in rem relief in the complaint. However, concurrent with the complaint, Bank filed 3
a notice of bankruptcy discharge and disclaimer of deficiency that referenced 4
Homeowners’ successful Chapter 7 bankruptcy and included a copy of the order of 5
discharge as an exhibit. 6

{ 6 } Homeowners filed a motion to dismiss pursuant to Rule 1

- 012(B)(1), (6) 7
NMRA. Homeowners argued that the statute of limitations for a written contract of 8
six years pursuant to Section 37

- 1

- 3 (A) applied, and because more than six years 9
had elapsed between their default on October 4, 2008
, and Bank’s filing of the 10
second foreclosure action on February 22, 2016, Bank’s foreclosure claim was 11

barred. 12

{ 7 } Bank responded that pursuant to Welty v. Western Bank of Las Cruces
, 13

1987

- NMSC

- 066, 106 N.M. 126, 740 P.2d 120, new and separate breaches of the 14
note and mortgage occurred between Homeowners’ original default on October 4, 15

2008 and October 7, 2009, when Bank accelerated the loan

— and each separate 16
breach of the note and mortgage accrued a new six

- year period of limitation for 17
each missed paymen t. Bank therefore argued that while its claim for some of 18
Homeowners’ oldest missed payments may have been barred by Section 37

- 1

- 3, 19
the majority of Homeowners’ missed payments, including the accelerated balance 204

as of October 7, 2009, fell within the statu te of limitations in light of the tolling of 1
the limitations period because of Homeowners’ three bankruptcy cases pursuant to 2

11 U.S.C. § 362 (2012) ( stating the circumstances in which the filing of a 3
bankruptcy petition triggers an automatic stay of other proceedings involving the 4
property of a debtor or bankruptcy estate)
, and NMSA 1978, Section 37

- 1

- 12 5
(1880) (governing the effect of a stay on the computation of statutes of 6

limitations). 7

{ 8 } After a hearing, the district court dismissed Bank’s foreclosu re complaint 8
with prejudice. The district court ruled that it would not consider the tolling effect 9
of Homeowners’ bankruptcy filings and denied Bank’s request to amend its 10
complaint to plead facts concerning Homeowners’ bankruptcies and their tolling 11

effe ct on the limitation period for Bank’s foreclosure claim. The district court did 12
not provide reasoning explaining why it would not grant Bank leave to amend its 13
complaint, but apparently agreed with Homeowners’ argument that “[t]here has 14
been nothing that prevented [Bank] from filing a motion to amend” between the 15
filing of the complaint and litigation of Homeowners’ motion to dismiss , and that 16
“if [Bank] wished to remedy the problem by amending the complaint, they had the 17
opportunity to do that and they fa iled to do so.” 18

{ 9 } Bank appeals from the order of dismissal with prejudice. 195

DISCUSSION 1

I. Standard of Review 2

{ 10 } “When facts relevant to a statute of limitations issue are not in dispute, the 3
standard of review is whether the district court correctly applied the law to the 4
undisputed facts.” Haas Ent ers . v. Davis , 2003

- NMCA

- 143, ¶ 9, 134 N.M. 675, 82 5
P.3d 42. “We review questions of law de novo.” Id. Further, insofar as our analysis 6
involves statutory interpretation, our review is de novo. See Wolinsky v. N.M. Corr

. 7
Dep’t , 2018

- NMCA

- 071, ¶ 3, 429 P.3d 991
, cert. denied , 2018

- NMCERT

- ___ 8

(No. S

- 1

- SC

- 37287, Oct. 26, 2018)

. 9

II. Dismissal of Bank’s Foreclosure Claim W as Precluded by Section 37

- 1

- 10

3 11

{ 11 } Bank argues that the district court erred in dismissing its entire foreclosure 12
claim with prejudice as barred by the statute of limitations, Section 3 7

- 1

- 3(A) 13
(providing that “[a]ctions founded upon any bond, promissory note, bill of 14
exchange or other contract in writing shall be brought within six years”). Ban k 15
concedes that certain of Homeowners’ missed payments due prior to Bank’s 16
October 7, 2009 acceleration of the balance remaining under the note may have 17
been barred when Bank filed the second foreclosure action on February 22, 2016. 18

However, Bank asserts t hat the limitation period had not run on the accelerated 19
balance as of October 7, 2009, considering the import of Welty and the tolling of 206

the limitation period due to Homeowners’ three bankruptcy cases and Bank’s 2015 1
demand letter. We agree. 2

A. Homeowner s’ Missed Payments Prior to Bank’s October 7, 2009 3 Acceleration 4

{ 12 } Generally, “[i]n a breach of contract action, the statute of limitations begins 5

to run from the time of the breach.” Welty , 1987

- NMSC

- 066, ¶ 8. In the context of 6

an installment contract, like the note in this case, see Maffett v. Emmons , 1948

- 7

NMSC

- 012, ¶¶ 1, 6, 52 N.M. 115, 192 P.2d 557 (construing a note promising 8
periodic payments as an installment contract), our Supreme Court held in Welty 9

that 10
under contract obligations payable by inst allments, the statute [of 11 limitations defined in Section 37

- 1

- 3(A)] would have begun to run 12 only with respect to each installment when due. The statute would 13 have begun to run with respect to the whole indebtedness only from 14 the date of an exercise of the option to declare the whole indebtedness 15 due. 16
Welty , 1987

- NMSC

- 066, ¶ 9. 17

{ 13 } Under the foregoing authority, we conclude that the payments due between 18
October 4, 2008 and October 4, 2009, prior to Bank’s October 7, 2009 acceleration 19

of the balance due unde r the note, were barred by the statute of limitations at the 20
time of Bank’s filing of the second foreclosure action. Pursuant to the note, which 21
provided that payments were due on the fourth day of every month, the last 22
payment Homeowners failed to make pr ior to the October 7, 2009 acceleration was 237

the payment scheduled for October 4, 2009. Applying Welty , the limitation period 1
for this missed payment accrued on October 4, 2009
, and ran six years later, on 2

October 4, 2015

— 142 days before Bank filed the seco nd foreclosure action on 3
February 22, 2016. See 1987

- NMSC

- 066, ¶ 9. It follows that the statute of 4
limitations for each payment missed by Homeowners prior to the October 4, 2009 5
payment also ran prior to Bank’s filing of the second foreclosure action. Id. 6

B. Homeowners’ Obligation Under the Note After Bank’s October 7, 2009 7 Acceleration 8

{ 14 } The fundamental dispute in this case concerns the tolling effect of 9
Homeowners’ three bankruptcy filings and Bank’s 2015 demand letter on the 10
running statute of limitations for Bank’s claim for the remaining amount due under 11

the note after Bank’s October 7 , 2009 acceleration. 12

{ 15 } Bank argues that mandatory stays on its foreclosure claim were triggered by 13
Homeowners’ bankruptcy filings, which tolled the statute of limitations for the 14
periods of time during which those cases were pending pursuant to 11 U.S.C. 15

§ 362(a) and Section 37

- 1

- 12

. See § 37

- 1

- 12 (providing that “[w]hen the 16
commencement of any action shall be stayed or prevented by injunction order or 17
other lawful proceeding, the time such injunction order or proceeding shall 18

continue in force shal l not be counted in computing the period of limitation”). 19
Further, relying on our Supreme Court’s statement in Welty , 1987

- NMSC

- 066, ¶ 9
, 20
that where a contract prohibits commencement of a suit for default within thirty 218

days of demand, the statute of limita tions is tolled during that period, Bank asserts 1
that under the terms of the note, following service of the demand letter to 2
Homeowners on August 28, 2015, the limitation period was tolled for an additional 3
thirty days. Based on these asserted periods of t olling of the limitation period for 4

Bank’s claim for the accelerated balance as of October 7, 2009, Bank contends that 5
the second foreclosure action was timely filed within the six

- year limitation period. 6

{ 16 } Homeowners respond that although generally “t he filing of a bankruptcy 7
petition operates as a stay of the commencement or continuation of judicial actions 8
such as the foreclosures at issue in this case[,]” here, § 362(c)(3) and 11 U.S.C. § 9
108(c) (2012) operate as an exception or limitation to the ge neral rule stated in § 10
362(a). Specifically, under these sections of the Bankruptcy Code, Homeowners 11
argue that Bank is not entitled to toll the time of Homeowners’ bankruptcies. It 12

follows, Homeowners assert, Bank’s second foreclosure action was filed aft er the 13

statute of limitations had run. 14

{ 17 } The commencement of a case under the B ankruptcy C ode “creates an estate. 15
Such estate is comprised of . . . all legal or equitable interests of the debtor in 16
property as of the commencement of the case.” 11 U.S.C. § 541 (a)(1) (201 6 ). The 17
filing of a petition under the bankruptcy code “operates as a stay, applicable to all 18
entities, of . . . any act to obtain possession of property of the estate or of property 19
from the estate or to exercise control over property of the estate[.]” § 362(a)(3). 209

{ 18 } Pursuant to § 362(c)(3)(A), “if a single or joint case is filed by or against a 1

debtor is filed by or against a debtor who is an individual in a case under Chapter 2
7, 11, or 13, and if a single or joint case of the debtor w as pending within the 3
preceding 1

- year period but was dismissed . . . the stay under subsection (a) with 4
respect to any action taken with respect to a debt or property securing such debt . . . 5
shall terminate with respect to the debtor on the 30th day afte r the filing of the later 6
case.” ( E mphas e s added

. ) Similarly, pursuant to § 108(c): 7
if applicable nonbankruptcy law . . . fixes a period for commencing or 8 continuing a civil action in a court other than a bankruptcy court on a 9 claim against the debtor
, or against [a codebtor]

. . . protected under 10 section 1201 or 1301 of this title, and such period has not expired 11 before the date of the filing of the petition, then such period does not 12 expire until the later of

-- 13
(1) the end of such period, including any susp ension of such 14 period occurring on or after the commencement of the case; 15

or 16
(2) 30 days after notice of the termination o r expiration of the 17 stay under section 362, 922, 1201, or 1301 of th is title, as the 18

case may be, with respect to such claim. 19
( E mphasis added

. ) 20

{ 19 } While Homeowners are correct to note that § 362(c)(3) and § 108(c) can 21
operate as exceptions or limitations to the mandatory stays described in § 362(a) in 22
actions filed by or against the debtor , Homeowners fail to recognize the 23
sig nificance, as Bank argues in its reply brief , of the material distinction drawn in 2410

bankruptcy law between actions against the debtor and actions against the estate , 1
as described in § 541, in the context of § 362(a). Bank argues that the precedent of 2

“[a] m ajority of federal courts, including the Tenth Circuit’s Bankruptcy Appellate 3
Panel[,]” which would have applied to Homeowners’ bankruptcy case that was 4
brought in New Mexico, holds that termination of the aut omatic stay occurs, 5

pursuant to § 362(c)(3)(A), only with regard to the debtor

— not the estate

. In 6
support of this argument, Bank cites In re Holcomb , 380 B.R. 813 ( B.A.P. 10th 7

Cir. 2008). 8

{ 20 } In Holcomb , the Tenth Circuit Bankruptcy Appellate Panel held that: 9
a majority of courts have [concluded] . . . the automatic stay 10 terminates under § 362(c)(3)(A) only with respect to the debtor and 11 the debtor’s property but not as to the property of the estate. These 12 courts reason that if Congress meant to terminate the stay in its 13 entirety, it would have done so in plain language[.] . . . On this basis, 14 we conclude that the language of § 362(c)(3)(A) terminates the stay 15 only as to the debtor and the debtor’s property. 16

380 B.R. at 81 5

- 1 6 (citations omitted). Accordingly, following the Tenth Circuit 17
precedent in Ho lcomb , we conclude that § 362(c)(3) and § 108(c), each of which 18
apply only to actions brought by or against the debtor , do not apply to this case in 19
which Bank sought only in rem relief against the property of Homeowners’ 20
bankruptcy estate. See Fed. Nat’l M or tg. Ass ’n v. Chiulli , 2018

- NMCA

- 054, ¶ 2, 21
425 P.3d 739 (recognizing that in the event of a default on a promissory note, the 2211

mortgagee has an independent remedy to sue on the note or in rem against the 1
mortgaged property to satisfy the debt). 2

{ 21 } Concluding § 362(c)(3) and 108(c) do not apply to this case, we turn to 3
Bank’s argument that
, pursuant to Section 37

- 1

- 12, the statute of limitations for its 4

claim for the accelerated balance as of October 7, 2009
, was tolled during the 5
periods in which Ho meowners’ three bankruptcies were pending in federal 6
bankruptcy court as a result of § 362(a) automatic stays. 7

{ 22 } Homeowners’ respond, in pertinent part, that “[e]ven if this Court reads 8

Section 37

- 1

- 12 as tolling the time in which the bankruptcy stay w as in effect, . . . 9
the Bank may not toll the 58 days of the first bankruptcy because the [f]irst 10
[f]oreclosure [l]awsuit, which was filed prior to the first bankruptcy, was pending 11
during the first bankruptcy.” In support, Homeowners’ cite Butler v. Deuts che 12

Morgan Grenfell, Inc. , 2006

- NMCA

- 084, ¶ 18, 140 N.M. 111, 140 P.3d 532 for 13
the proposition that “Section 37

- 1

- 12 does not apply unless the ‘commencement’ 14
of an action is stayed or prevented[.]’ ” 15

{ 23 } We assume without deciding that Homeowners argument concerning the 16
applicability of Section 37

- 1

- 12 to the automatic stay resulting from their first 17
bankruptcy is correct. Furthermore, we also assume that this rationale also applies 18
to the approximate four

- month period in which both Homeowners’ second 19

bank ruptcy (filed on November 17, 2011) and Bank’s first foreclosure actions were 2012

concurrently pending in federal bankruptcy and New Mexico state district court 1
prior to Bank’s voluntary dismissal of the first foreclosure action on March 20, 2

2012. However, not withstanding these assumptions, we conclude sufficient tolling 3
of the limitation period as a result of the stays resulting from Homeowners’ second 4
bankruptcy (which remained pending after Bank’s voluntary dismissal of the first 5

foreclosure action) and thir d bankruptcy cases operated to bring Bank’s filing of 6

the second foreclosure action within the six

- year limitation period as contemplated 7
by Section 37

- 1

- 12. 8

{ 24 } First, under the undisputed facts, 88 days passed between Bank’s March 20, 9
2012 voluntary dis missal of the first foreclosure action and the dismissal of 10
Homeowners’ second bankruptcy case on June 15, 2012. Second, 156 days passed 11
between Homeowners’ filing of the third bankruptcy case on August 21, 2012 and 12
the bankruptcy court’s January 23, 2013 discharge order. It follows, consistent 13

with Section 37

- 1

- 12, that the automatic stays pursuant to § 362(a), resulting from 14
Homeowners’ second and third bankruptcies, operated to toll the limitation period 15

for Bank’s claim for the accelerated balance as of October 7, 2009
, for a total of 16
244 days. The six

- year limitation period for the accelerated balance was originally 17

scheduled to run on October 7, 2015; however, based on the 244

- day tolling of the 18
limitation period, we conclude that limitation period was pushed to run on May 27, 19
2016. Therefore, when Bank filed the second foreclosure action on February 22, 2013

2016, 107 days remained under the statute of limitations for Bank to refile its 1
action for the accelerated balance. Accordingly, we conclude that the d istrict court 2
erred in dismissing Bank’s entire foreclosure claim as precluded by the statute of 3

limitations. 4

{ 25 } In so concluding, we briefly address the issue raised by Bank concerning the 5
tolling effect of Bank’s 2015 demand letter, which Bank argues s hould apply to 6
toll the limitation period for an additional thirty days on grounds that Homeowners 7
failed to respond to the argument, constituting a concession of the issue

. See, e.g. , 8
State v. Templeton , 2007

- NMCA

- 108, ¶ 22, 142 N.M. 369, 165 P.3d 1145 ( s tating 9
that the failure to respond to contentions made in an answer brief is “ a concession 10
on the matter”). Based on our conclusion above that Bank’s claim for the 11

accelerated balance as of October 7, 2009 was filed within the statute of 12

limitations, deter mination of this issue is unnecessary. Similarly, based on our 13
conclusion above, we do not address Bank’s second argument

— that the district 14
court abused its discretion in denying Bank leave to amend the second foreclosure 15
complaint to plead Homeowners’ thr ee bankruptcy cases. 16

CONCLUSION 17

{ 26 } The district court’s order of dismissal is reversed. We remand for further 18
proceedings consistent with this opinion. 19

{ 27 } IT IS SO ORDERED. 2014 __ ___ ____________________________ 1 MICHAEL E. VIGIL , Judge 2

WE CONCUR: 3

_________________________________ 4 M. MONICA ZAMORA , Judge 5

_________________________________ 6 JULIE J. VARGAS , Judge 7