Court Opinion

ID: 9792179
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:24:30.467938+00
Date Added: 2024-06-11T07:37:40.967384
License: Public Domain

DONNELLY, Judge, dissenting. 14. I respectfully dissent from the Majority’s opinion. As shown by the record, the Debtor defaulted in her payments to Morgan Keegan Mortgage Company and the Mortgagee filed foreclosure proceedings. The foreclosure action named New Mexico Educators Federal Credit Union (the Credit Union) as a defendant. The Credit Union filed an answer to the Mortgagee’s complaint and filed a cross-claim for foreclosure of an outstanding judgment lien it had obtained against the Debtor. 15. During the pendency of the foreclosure proceeding, the Debtor asserted her right to a homestead exemption under NMSA 1978, Section 42-10-9 (1979). The Debtor also filed a motion seeking permission from the trial court to enter into a sale of the property to a third party whom she had privately negotiated with for sale of her realty. The third-party purchaser was a stranger to the foreclosure action and was not affiliated with any other party. 16. Over the Credit Union’s objection, during the foreclosure action, the trial court permitted the Debtor to sell the realty involved in the foreclosure proceedings to a third party and to claim a homestead exemption out of the proceeds of the sale. The order allowing the exemption and authorizing the sale stated that a homestead exemption “should also be available to the debtor in a privately negotiated sale pending foreclosure proceedings.” At the time the order authorizing the sale of the subject property to the third party was entered, there was no adjudication of the amounts claimed by the creditors, and no judgment of foreclosure was entered in favor of either the Mortgagee or the Credit Union. Nor have any judgments of foreclosure ever been entered. After approving the third-party sale, the trial court directed that a portion of the proceeds of the sale be applied to pay off the Mortgagee, that the Debtor’s homestead exemption be authorized from the sale proceeds, and that the transcript of judgment sought to be foreclosed by the Credit Union be released. 17. The Credit Union does not dispute the legitimacy of the Debtor’s right to a homestead exemption in the context of a foreclosure proceeding. The Credit Union, however, challenges the right of a debtor to claim a homestead exemption where a sale of the subject property occurs during the pendency of foreclosure proceedings and the sale is carried out other than through the conclusion of the foreclosure action. 18. The Credit Union argues that “there is no provision in the statute for the application of the Homestead Exemption in a situation where the sale is voluntary and the transaction is between a Seller and a Third-party Purchaser,” and that an owner of real property “who is selling the property to avoid a foreclosure action [should not be] categorized as an ‘involuntary seller.’ ” 19. The Majority, based on its determination that the homestead exemption should be liberally construed, reaches a decision that, I believe, will result in consequences beyond what the Court appears to recognize. Although conceding that our courts have not expressly addressed the question of whether a homestead exemption may be recognized in a situation involving a court-approved sale of property to a third-party purchaser during the pendency of foreclosure proceedings, the Majority nevertheless legitimizes such sale and the Debtor’s claim of a homestead exemption out of the sale proceeds. This procedure is a marked departure from statutory provisions governing mortgage foreclosure proceedings. 20. The trial court found that the third-party sale was “not purely a voluntary sale, but rather [was] a sale entered into ... during the pendency of the foreclosure action filed by [the Mortgagee] and the [Credit Union].” The trial court stated that “judicial policy should be to encourage a voluntary sale during the pendency of Court foreclosure actions in order to maximize the return to the [Debtor].” The difficulty with this approach is that allowance of the exemption, under the circumstances existing here, permits the Debtor to side-step legislative procedures designed to protect both debtors and creditors in mortgage foreclosure proceedings. See NMSA 1978, §§ 39-5-1 to -23 (1856-57, as amended through 1991); see also § 39-5-2 (declaring sales of property other than as prescribed by statute unlawfill). 21. Once foreclosure proceedings are commenced and the Debtor has admitted the existence of the judgment lien asserted by the Credit Union (as is the ease here), absent the consent of a party seeking foreclosure, a creditor is entitled to rely on the procedures and protections afforded by the mortgage foreclosure statutes. These protections include, among other things, adjudication of the merits of each creditor’s claim, appraisal of the subject property, public notice of any sale, entry of an order of foreclosure, that the foreclosure sale be carried out by public sale, and the right of redemption. Most of these statutory provisions were absent here. 22. The Credit Union asserts that a sale carried out over its objection during the pendency of a foreclosure action, and prior to entry of an order of foreclosure, is one not contemplated by the legislature; hence, the exemption is not applicable. As pointed out by the Credit Union in its brief-in-ehief: The [Mortgagee] and the Credit Union both filed Complaints in foreclosure against [the Debtor] and against the subject real property. Neither of the [foreclosure proceedings against the Debtor] ever reached the point of a Judgment or a judicial sale; the matter was resolved by a non-judicial sale. The Homestead Exemption statute was not intended to apply in the event that there was the threat or the likelihood of a foreclosure sale____ Rather, [the legislative intent was] that the Homestead Exemption would be available in the event that [foreclosure, attachment, execution or other legal action] reached its legal conclusion---- 23.I would reverse the order allowing the exemption under the circumstances existing here.