-
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
LNV CORPORATION, )
)
Plaintiff, )
)
v. ) No.: 3:12-CV-468-TAV-HBG
)
CATHERINE GEBHARDT )
)
Defendant. )
INTERVENERS MOTION FOR JUDICIAL NOTICE OF INFORMATION AND
CRIMINAL INDICTMENT AND PLEA
AGREEMENT OF LORRAINE BROWN
Comes Now the Interveners, representing themselves, pursuant to
Rule 201 Judicial Notice of
Adjudicative Facts hereby requests this Court take Judicial
Notice of the documents described
herein and in support states as follows:
1. THE INTERVENERS move this Court to take judicial notice
of:
Opinion of Judge Robert N. Hunter, Jr. in the Court of Appeals
of North Carolina; No.
COA11-565, Bass v. U.S. Bank, Dec. 6 2011, affirming the trials
courts ruling that U.S.
Bank was note the Note Holder and lacked standing to foreclose
based on a Judy Faber
signature on an allonge to a Note transferring beneficial
interest from Residential
Funding Corporation (attached hereto as Exhibit A.)
Opinion of Judge Robert N. Hunter, Jr. in the Court of Appeals
of North Carolina; NO
COA10-361, Gilbert v. Simpson, reversing the trail courts order
to proceed with
-
foreclosure based on a Judy Faber signature on an allonge to a
Note transferring
beneficial interest from Residential Funding Corporation
(attached hereto as Exhibit B.)
Deposition Transcript of Judy Faber for U.S. Bank v. Robinson;
State of Indiana;
Marion County, Cause No.: 49D06-0703-MF-013045 consolidated
with: 49D10-0609-
PL-40167 (attached hereto as Exhibit C.)
2. Under Federal Rule of Evidence 201 the court may judicially
notice a fact that is not
subject to reasonable dispute because it: (1) is generally known
within the trial courts
territorial jurisdiction; or (2) can be accurately and readily
determined from sources
whose accuracy cannot reasonably be questioned. The Court may
take judicial notice of
records of any court of record of the United States.
3. THE INTERVENERS move this Court to take Judicial Notice of
the opinion of other
courts and the deposition transcript of Judy Faber because the
documents show that
employees of Residential Funding Corporation signed thousands of
mortgage
assignments and allonges, often signing the names of other
persons on the Mortgage
Assignments that would then be witnessed and notarized. These
employees often signed
as officers of banks and mortgage companies. The employees
signed without reading the
documents or in any way ascertaining the truth of the matter
presented therein, including
the grantor, grantee, and the date of the purported
transfer.
4. Many of the documents, including mortgage assignments and
lost note affidavits, were
later relied upon in court proceedings including foreclosure
proceedings and federal
bankruptcy actions.
-
5. The documents attached hereto as Exhibits A and B may be
accessed online from
PACER.
6. Timely written notice of this request is hereby given by
email and postal mail service
upon Plaintiffs counsel as required by law.
WHEREFORE, pursuant to Federal Rule of Evidence 201 THE
INTERVENERS move
this Court to take Judicial Notice of judicially determined
facts pertaining to the signature
of Judy Faber and the authenticity of deed assignments and
allonges bearing her signature
without hearing, and for such other and further relief as this
Court deems just and proper
under the circumstances.
RESPECTFULLY SUBMITTED on this _____ day of May, 2014
_________________________________
DENISE SUBRAMANIAM as Representative for THE INTERVENERS
-
CERTIFICATE OF SERVICE
The undersigned hereby certifies that the copy of the foregoing
motion of the Interveners
has been forwarded by regular U.S. Mail upon the following:
Ronald G. Steen Jr. and
Kevin P. Hartley
STITES & HARBISON, PLLC
Sun Trust Plaza
401 Commerce Street
Suite 800
Nashville, Tennessee, 37219
SUBMITTED on this _____ day of May, 2014
_________________________________
DENISE SUBRAMANIAM as Representative for the THE INTERVENERS
-
Exhibit A - Page 1 of 2
EXHIBIT A
-
SOURCE:
http://dtc-systems.net/2011/12/bank-note-holder-north-carolina-bass-vs-bank/
US Bank is not the Note Holder North Carolina: Bass vs. US Bank
Posted on December 13, 2011 by Dan Edstrom
This case is listed here without comment. The issues of
endorsements, allonges, burden of proof, etc. are raised here and
are very illuminating.
In the Matter of the foreclosure of a Deed of Trust executed by
Tonya R. Bass in the original amount of $139,988.00 dated October
12, 2005, recorded in Book 4982, Page 86, Durham County Registry,
Substitute Trustee Services, Inc., as Substitute Trustee,
No. COA11-565.
Court of Appeals of North Carolina.
Filed: December 6, 2011.
K&L Gates, LLP, by A. Lee Hogewood III, and Brian C. Fork
for Petitioner-appellant.
Legal Aid of North Carolina, Inc., by E. Maccene Brown, Gregory
E. Pawlowski, John Christopher Lloyd, and Andre C. Brown, for
Respondent-appellee.
ROBERT N. HUNTER, JR., Judge.
U.S. Bank, National Association, as Trustee, c/o Wells Fargo
Bank, N.A. (Petitioner) appeals the trial courts order dismissing
foreclosure proceedings against Respondent Tonya R. Bass.
Petitioner assigns error to the trial courts determination that
Petitioner is not the legal holder of a promissory note executed by
Respondent and therefore lacks authorization to foreclose on
Respondents property securing the note under a deed of trust. After
careful review, we affirm.
I. Factual & Procedural Background
On 12 October 2005, Respondent executed an adjustable rate
promissory note (the Note) in favor of Mortgage Lenders Network
USA, Inc. (Mortgage Lenders). The Note evidences Respondents
promise to pay Mortgage Lenders the principal amount of $139,988.00
plus interest in monthly installments of $810.75 beginning December
2005. The terms of the Note state that Respondent will be in
default if she fails to pay the full amount of each monthly payment
on the date it is due. Respondent secured the Note with a Deed of
Trust encumbering real property located at 4240 Amberstone Way in
Durham. The Deed identifies Mortgage Lenders as the lender and
Mitchell L. Hefferman as trustee. The Deed of Trust also sets forth
a power of sale clause providing that Respondents default on her
monthly payment obligations under the terms of the Note and failure
to cure such default could result in foreclosure of Respondents
property as described in the Deed of Trust.
The record indicates Respondent fell behind on her monthly
payments under the Note and, to date, is current on payments only
through July 2008. As discussed further infra, the Note was
purportedly transferred several times before coming into
Petitioners possession. On or about 10 January 2008, Petitioner, as
holder of the Note evidencing the entire indebtedness secured by
the [] Deed of Trust, filed an Appointment of Substitute Trustee
with the Durham County Register of Deeds. The Appointment of
Substitute Trustee purportedly removed Mr. Hefferman as trustee
under the Deed of Trust and replaced him with Substitute Trustee
Services, Inc. (Substitute Trustee). On 27 March 2009, Substitute
Trustee commenced foreclosure proceedings against
-
Respondent by filing a Notice of Foreclosure Hearing in Durham
County Superior Court in accordance with North Carolina General
Statutes 45-21.16. The Notice of Foreclosure Hearing stated
Petitioners intent to foreclose on the Note and Deed of Trust
because of [Respondent's] failure to make timely payments on the
Note.
On 8 April 2010, a foreclosure hearing was held before the Clerk
of Durham County Superior Court. Upon consideration of the
statutorily prescribed elements, see N.C. Gen. Stat. 45-21.16(d)
and discussion infra, the clerk of court entered an order
permitting Substitute Trustee to proceed with foreclosure of
Respondents property. Respondent timely appealed the clerks order
to the superior court, and foreclosure of Respondents property was
stayed pending outcome of the appeal. Respondents appeal to the
superior court was continued twice as she attempted,
unsuccessfully, to negotiate a loan modification with
Petitioner.
On 16 August 2010, this matter was heard before Superior Court
Judge Abraham Penn Jones. Petitioner introduced evidence
establishing: Respondents default on her payment obligations under
the Note, the Note was secured by the Deed of Trust, the Deed of
Trust set forth a power of sale clause, and Respondent was properly
served with notice of the foreclosure hearing. Petitioner also
produced the original Note and Deed of Trust through the testimony
of Erin Hirzel-Roesch, a Wells Fargo litigation specialist, and
introduced copies of each document for examination by the
court.
The Note as introduced before the trial court consists of five
pages with a one-page ALLONGE TO NOTE (the Allonge) attached as
page six. The fifth page of the Note bears three stamps purportedly
indorsing and transferring the Note among prior holders and,
ultimately, to Petitioner. The first stamp reads PAY TO THE ORDER
OF EMAX FINANCIAL GROUP, LLC WITHOUT RECOURSE By: MORTGAGE LENDERS
NETWORK USA, INC and bears no handwritten signature. The second
stamp reads RESIDENTIAL FUNDING CORPORATION CHAD JONES VICE
PRESIDENT and bears the apparent handwritten signature of Chad
Jones. The third stamp reads PAY TO THE ORDER OF U.S. Bank National
Association as Trustee WITHOUT RECOURSE Residential Funding
Corporation by Judy Faber, Vice President and bears the apparent
handwritten signature of Judy Faber. The Allonge, dated 25 October
2005, states Pay to the order of Without recourse: Residential
Funding Corporation. The Allonge bears the apparent handwritten
signature of Michele Morales and identifies Ms. Morales as Manager
of Sales and Acquisitions [at] Emax Financial Group, LLC.
Respondent did not testify or present evidence at the
foreclosure appeal hearing. Respondent contended only that
Petitioner is not entitled to foreclose because [Petitioner is] not
the proper holder of [the Note]. Specifically, Respondent asserted
that the indorsement from Mortgage Lenders to Emax Financial Group,
LLC (Emax) was not a proper indorsement because you have to have
more than a stamp and We dont know who had authority [at Mortgage
Lenders] to authorize the sale of (unintelligible) to [Emax].
Respondent also challenged the indorsement from Emax to Residential
Fundings Corporation (Residential) because [t]here is nothing on
the last page of [the Note] to show how and where [Residential] got
this commercial paper.
The trial court entered an order on 13 September 2010 dismissing
Petitioners foreclosure proceedings against Respondent. In its
order, the trial court found as fact, inter alia, that the
indorsement from Mortgage Lenders to Emax was not signed, and the
indorsement from Emax to Residential did not indicate the source of
the transfer. The trial court concluded as a matter of law that, in
light of these ineffective indorsements, Petitioner was not the
legal holder of the Note and was not authorized to appoint a
substitute trustee to institute foreclosure proceedings against
Respondent. Petitioner filed its Notice of Appeal with this Court
on 3 November 2010.
II. Analysis
There are two methods of foreclosure possible in North Carolina:
foreclosure by action and foreclosure by power of sale. Phil Mech.
Const. Co., Inc. v. Haywood, 72 N.C. App. 318, 321, 325 S.E.2d 1, 3
(1985). A foreclosure by action consists of a formal judicial
proceeding; a foreclosure by power of sale, in contrast, is a
DENISE.SUBRAMANIAMHighlight
-
special proceeding[1] whereby `[t]he parties have agreed to
abandon the traditional foreclosure by judicial action in favor of
a private contractual remedy to foreclose. In re Adams, ___ N.C.
App. ___, ___, 693 S.E.2d 705, 708 (2010) (citation omitted)
(alteration in original); In re Goforth Properties, Inc., 334 N.C.
369, 374, 432 S.E.2d 855, 858 (1993) (`Historically, foreclosure
pursuant to a power of sale in a deed of trust ha[s] been a private
contract remedy. (citations omitted)).
A mortgagee or trustee seeking to exercise a power of sale under
a deed of trust must establish four elements before the clerk of
court in order to proceed with foreclosure: (1) a valid debt exists
and the foreclosing party is the holder of the debt; (2) the debtor
has defaulted on the debt; (3) the instrument evidencing the debt
permits foreclosure; and (4) proper notice has been provided to all
entitled parties.[2] See N.C. Gen. Stat. 45-21.16(d) (2009); In re
Adams, ___ N.C. App. at ___, 693 S.E.2d at 709. The scope of the
foreclosure hearing before the clerk of court is strictly limited
to these four issues because foreclosure under a power of sale
provision in a deed of trust is intended to serve as a means of
avoiding lengthy and costly foreclosures by action. In re Watts, 38
N.C. App. 90, 94, 247 S.E.2d 427, 429 (1978). Our Courts have
stressed, however, that while a power of sale provision is meant to
`function as a more expeditious and less expensive alternative to a
foreclosure by action, `foreclosure under a power of sale is not
favored in the law, and its exercise will be watched with jealousy.
In re Adams, ___ N.C. App. at ___, 693 S.E.2d at 708 (citations
omitted). The clerk of courts order authorizing or dismissing
foreclosure is appealable to the superior court. N.C. Gen. Stat.
45-21.16(d)(1) (2009). On appeal, the superior court reviews de
novo the same four issues described supra. See id.
The superior courts order dismissing foreclosure is a final
judgment, and, therefore, this Court exercises jurisdiction over
Petitioners appeal pursuant to North Carolina General Statutes
7A-27(b) (2009). Our review of the trial courts order dismissing
foreclosure is limited to determining whether competent evidence
exists to support the trial courts findings of fact and whether the
conclusions [of law] reached [by the trial court in its order
dismissing foreclosure] were proper in light of the findings [of
fact]. In re Azalea Garden Bd. & Care, Inc., 140 N.C. App. 45,
50, 535 S.E.2d 388, 392 (2000). Findings of fact by the trial court
in a non-jury trial have the force and effect of a jury verdict and
are conclusive on appeal if there is evidence to support those
findings. A trial courts conclusions of law, however, are
reviewable de novo. Holden v. John Alan Holden, ___ N.C. App. ___,
___, 715 S.E.2d 201, 209 (2011).
Before applying this standard in the instant case, we note the
trial court incorrectly classified multiple legal conclusions as
findings of fact. This Court has recognized that [t]he
classification of a determination as either a finding of fact or a
conclusion of law is admittedly difficult. In re Helms, 127 N.C.
App. 505, 510, 491 S.E.2d 672, 675 (1997). Nonetheless, proper
classification is critical because it shapes this Courts review of
the issues on appeal. Significant deference is afforded to the
trial courts findings of fact under the competent evidence
standard. See State v. Hagin, ___, N.C. App. ___, ___, 691 S.E.2d
429, 431, review denied, ___ N.C. ___, 702 S.E.2d 500 (2010) (The
trial courts findings are conclusive `if supported by any competent
evidence even if there is evidence to the contrary that would
support different findings. (citation omitted)). In contrast, we
afford no deference to the trial courts conclusions of law. See
Goldston v. State, 199 N.C. App. 618, 625, 683 S.E.2d 237, 242
(2009) (Because we review questions of law de novo, we give no
deference to the trial courts rulings.). Generally, any
determination requiring the exercise of judgment or the application
of legal principles is more properly classified a conclusion of
law. In re Helms, 127 N.C. App. at 510, 491 S.E.2d at 675 (internal
citations omitted). A determination reached through `logical
reasoning from the evidentiary facts is more properly classified a
finding of fact. Id. (citation omitted).
Here, the trial court found as fact and concluded as a matter of
law the following: (1) purported prior holders of the Note,
Mortgage Lenders and Emax, did not properly indorse and transfer
the Note, (2) Petitioner is not the legal holder of the Note, (3)
Petitioner did not have authority to appoint a substitute trustee
because it was not the legal holder of the Note, and (4) Petitioner
did not have authority to commence foreclosure proceedings against
Respondent. We conclude that these determinations each involve
application of legal principles and are more properly classified as
conclusions of law. We reclassify these findings of fact as
conclusions of law and apply our standard of review accordingly.
See N.C. State Bar v. Key, 189 N.C. App. 80, 88, 658 S.E.2d 493,
499
-
(2008) ([C]lassification of an item within the order is not
determinative, and, when necessary, the appellate court can
reclassify an item before applying the appropriate standard of
review.).
Of the issues considered by the clerk of court and subsequently
reviewed de novo by the trial court, the sole issue presented on
appeal to this Court is whether Petitioner, as the party seeking
foreclosure under a power of sale, is the holder of a valid debt.
See N.C. Gen. Stat. 45-21.16(d) (2009). Respondent is entitled to
demand strict proof of this element. Liles v. Myers, 38 N.C. App.
525, 528, 248 S.E.2d 385, 388 (1978).
This Court has described this inquiry as follows:
In order to find that there is sufficient evidence that the
party seeking to foreclose is the holder of a valid debt in
accordance with N.C.G.S. 45-21.16(d), this Court has determined
that the following two questions must be answered in the
affirmative: (1) `is there sufficient competent evidence of a valid
debt?; and (2) `is there sufficient competent evidence that [the
party seeking to foreclose is] the holder of the notes [that
evidence that debt]?
In re Adams, ___ N.C. App. at ___, 693 S.E.2d at 709
(alterations in original) (citations omitted). We note that the
separation of this statutory requirement into two distinct
inquiries is a simplification tool and does not alter our standard
of review. This Court constructed the sufficient competent evidence
standard to serve as guidance in the clerk of courts application of
North Carolina General Statutes 45-21.16(d). See, e.g., In re
Burgess, 47 N.C. App. 599, 603, 267 S.E.2d 915, 918 (1980) ([W]e
construe G.S. 45-21.16(d)(i) to permit the clerk to find a `valid
debt of which the party seeking to foreclose is the holder if there
is competent evidence that the party seeking to foreclose is the
holder of some valid debt, irrespective of the exact amount owed.);
In re Simpson, ___ N.C. App. at ___, 711 S.E.2d at 171 ([I]n order
for the foreclosure to proceed, the clerk of court must find.. .
the existence of a valid debt. (citing N.C. Gen. Stat. 45-21.16(d)
(2009)) (emphasis added) (internal quotation marks omitted)).
Whether a party is the holder of a valid debt and whether a valid
debt exists are questions of law. See In re Helms, 127 N.C. App. at
510, 491 S.E.2d at 675 ([A]ny determination requiring the exercise
of judgment or the application of legal principles is more properly
classified a conclusion of law. (internal citations omitted)). As
such, this Court must determine whether the trial courts
conclusions with respect to these questions are supported by its
findings and, in turn, whether such findings are supported by
competent evidence. See supra.
In the case sub judice, the existence of a valid debt is not in
disputeRespondent concedes she has defaulted under the terms of the
Note. The sole issue remaining is whether Petitioner is the legal
holder of the Note evidencing Respondents debt. This determination
is critical because it protect[s] [Respondent] from the threat of
multiple judgments on the [Note]. In re Simpson, ___ N.C. App. at
___, 711 S.E.2d at 171. Absent this requirement, the Note could be
negotiated `to a third party who would become a holder in due
course, bring a suit upon the [Note] and obtain a judgment in her
favor. Id. (quoting Liles, 38 N.C. App. at 527, 248 S.E.2d at 387).
Requiring the foreclosing party to introduce sufficient competent
evidence that it `is the holder of the note at the time of [the]
suit reduces the possibility of such an inequitable occurrence. Id.
(quoting Liles, 38 N.C. App. at 527, 248 S.E.2d at 387).
In determining whether the foreclosing party is the holder of a
valid debt for purposes of North Carolina General Statutes
45-21.16(d), this Court has applied the definition of holder as set
forth in North Carolinas adoption of the Uniform Commercial Code
(UCC). See In re Connolly, 63 N.C. App. 547, 550, 306 S.E.2d 123,
125 (1983). North Carolina General Statutes 25-1-201 defines holder
as [t]he person in possession of a negotiable instrument that is
payable either to bearer or to an identified person that is the
person in possession. N.C. Gen. Stat. 25-1-201(b)(21) (2009). This
Court has also defined holder under former North Carolina General
Statutes 25-1-201(20) as `a person who is in possession of an
instrument issued or indorsed to him or to his order. In re
Connolly, 63 N.C. App. at 550, 306 S.E.2d at 125 (citation omitted)
(alterations in original). Any `individual, corporation, business
trust, estate, trust.. . or any other legal or
-
commercial entity can serve as the holder of a promissory note.
In re Simpson, ___ N.C. App. at ___, 711 S.E.2d at 171 (quoting
N.C. Gen. Stat. 25-1-201(b)(27) (2009)) (alteration in
original).
A person may become the holder of an instrument: (1) through
issuance of the instrument to that person or (2) through
negotiation of the instrument to that person. See N.C. Gen. Stat.
25-3-201(b) (2009); N.C. Gen. Stat. 25-3-201 cmt. 1 (2009).
Issuance of an instrument occurs through first delivery of the
instrument by the maker of the instrument. N.C. Gen. Stat.
25-3-105(a) (2009). The record before this Court establishes that
Respondent issued the Note in favor of Mortgage Lenders. See N.C.
Gen. Stat. 25-3-103(a)(5) (2009) (defining maker as a person who
signs a note as a person undertaking to pay); N.C. Gen. Stat.
25-1-201(b)(15) (2009) (defining delivery of an instrument as a
voluntary transfer of possession); N.C. Gen. Stat. 25-3-110(a)
(2009) (The person to whom an instrument is initially payable is
determined by the intent of the person signing as the issuer of the
instrument.).
The second method through which a person becomes the holder of
an instrument, negotiation, occurs when a person other than the
issuer transfers possession of the instrument to a person who
becomes its holder. See N.C. Gen. Stat. 25-3-201 (2009). Mortgage
Lenders, as a party in possession of a promissory note made payable
to its order was the original holder of the Note. In order for
Mortgage Lenders to negotiate the Note, thereby conferring holder
status upon a subsequent transferee, Mortgage Lenders was required
to (1) indorse the Note and (2) transfer possession of the Note to
the intended transferee. N.C. Gen. Stat. 25-3-201(b) (2009) ([I]f
an instrument is payable to an identified person, negotiation
requires transfer of possession of the instrument and its
indorsement by the holder.).
Petitioner contends the stamps on the fifth page of the Note and
the accompanying Allonge establish: (1) Mortgage Lenders indorsed
and negotiated the Note to Emax, (2) Emax indorsed and negotiated
the Note to Residential, and (3) Residential indorsed and
negotiated the Note to Petitioner. Petitioner further contends that
because these stamps establish proper negotiation of the Note to
Petitioner, and because Petitioner is currently in possession of
the Note, the trial court erred in concluding that Petitioner is
not the holder of the Note.
Petitioner produced the original Note at the de novo foreclosure
hearing through the testimony of Ms. Hirzel-Roesch. However,
[p]roduction of an original note at trial does not, in itself,
establish that the note was transferred to the party presenting the
note with the purpose of giving that party the right to enforce the
instrument. In re Simpson, ___ N.C. App. at ___, 711 S.E.2d at 171.
The critical question is whether the Note was properly negotiated
through the chain of purported holders such that Petitioner is the
holder of the Note.
We begin by examining the first stamp on page five of the Note.
The stamp reads:
PAY TO THE ORDER OF: EMAX FINANCIAL GROUP, LLC WITHOUT RECOURSE
BY: MORTGAGE LENDERS NETWORK USA, INC.
Petitioner contends this stamp represents Mortgage Lenders
indorsement of the Note for purposes of negotiating the Note to
Emax. We cannot agree.
An indorsement is a signature, other than that of a signer or
maker that alone or accompanied by other words [may be] made on an
instrument for the purpose of negotiating the instrument. N.C. Gen.
Stat. 25-3-204(a)(i) (2009). [R]egardless of the intent of the
signer, a signature and its accompanying words is an indorsement,
unless the accompanying words, terms of the instrument, place of
the signature, or other circumstances unambiguously indicate that
the signature was made for a purpose other than indorsement. N.C.
Gen. Stat. 25-3-204(a)(iii) (2009). North Carolina has adopted a
broad definition of signature to include any mark, symbol, or
initials, which may be printed, stamped, or written. N.C. Gen.
Stat. 25-1-201(b)(37) cmt. 37 (2009) (emphasis added) ([A] compete
signature is not necessary. No catalog of possible situations can
be complete and the court must use common sense and commercial
experience in passing upon these matters.).
-
Notwithstanding this broad definition, a symbol will constitute
a signature only where the symbol was adopted by the party with the
present intent to authenticate the writing. Id. Moreover, an
indorsment does not prove itself, but must be established by proper
testimony. Our Supreme Court has specifically held that a stamp may
constitute a valid indorsement, but only if the stamp is executed
by a person having the intent and authority to do so. Mayers v.
McRimmon, 140 N.C. 640, 642, 53 S.E. 447, 448 (1906); Branch
Banking & Trust Co. v. Gill, 293 N.C. 164, 178, 237 S.E.2d 21,
29 (1977) (holding a stamp is sufficient to indorse a negotiable
instrument if done by a person authorized to indorse for the payee
and with intent thereby to indorse).
At the foreclosure hearing, Petitioner did not introduce any
evidence to establish that the stamp purportedly indorsing and
transferring the Note from Mortgage Lenders to Emax is an
authorized signature. Petitioner introduced only the Note itself,
depicting, as the trial court found, a stamp on the Promissory Note
stat[ing] PAY TO THE ORDER OF: EMAX FINANCIAL GROUP, LLC, WITHOUT
RECOURSE, BY: MORTGAGE LENDERS NETWORK USA, INC. This stamp is
unsigned. Petitioners sole witness, Ms. Hirzel-Roesch, admitted she
had no personal knowledge of the transfers made by the purported
prior holders of the Note beyond the information represented on the
Note itself. Petitioner avers, however, that it was not required to
produce additional evidence to establish the stamps authenticity as
an indorsement because a stamp falls within the broad statutory
definition of signature, and [t]he language and location of the
indorsement clearly and unambiguously show the stamp was made with
the intention to transfer ownership of the note from Mortgage
Lenders [] to Emax.
While it is true that a stamp can serve as a valid indorsement,
our Supreme Courts rulings in Mayers and Branch Banking & Trust
Co, see supra, clearly hold that the person placing the stamp must
act with authorization and with the intent to indorse the
instrument. See supra. The stamp at issue reflects only the name of
an entity, Mortgage Lenders. Unlike the other stamps on the Note,
no countersignature appears to indicate the capacity in which the
signor acted in executing the stamp on behalf of Mortgage Lenders.
This is a troublesome omission, as [a] corporation can only act
through its agents, Anderson v. Am. Suburban Corp., 155 N.C. 131,
71 S.E. 221, 222 (1911). Mortgage Lenders liability on the Note
turns on the authority (or lack thereof) of the individual
executing the stamp, a determination impossible for this Court to
make based solely upon the face of this stamp.
Petitioner contends that Respondent bears the burden of proving
the stamp is an invalid signature. Petitioner cites North Carolina
General Statutes 25-3-308(a) as quoted in a recent decision of the
United States Bankruptcy Court for the Middle District of North
Carolina. The Court, considering the question of what evidence a
subsequent holder of a promissory note must show to establish the
authenticity of a prior indorsement stated [i]f the validity of a
signature is denied in the pleadings, the burden of establishing
the validity is on the person claiming validity, but the signature
is presumed to be authentic. In re Vogler, 2009 WL 4113704 at 2
(Bankr. M.D.N.C. 2009) (citing N.C. Gen. Stat. 25-3-308(a)).
Petitioner contends that in light of the presumption set forth
under North Carolina General Statutes 25-3-308(a), [t]he
indorsement stamp is presumed to be authentic, and that presumption
cannot be overcome unless the Respondent presents evidence to
contest such authenticity.
We note initially that a decision of the Bankruptcy Court is not
binding on this Court. However, Petitioners contention raises an
apparent conflict among our General Statutes. On one hand, North
Carolina General Statutes 45-21.16(d) clearly places the burden
upon Petitioner to prove it is the holder of a valid debt; North
Carolina General Statutes 25-3-308(a), however, presumes
authenticity of a signature, apparently placing the burden upon
Respondent to disprove the validity of an indorsement. We find
Official Comment 1 under 25-3-308 instructive. Official Comment 1
to North Carolina General Statutes 25-3-308 states [t]he question
of the burden of establishing the signature arises only when it has
been put in issue by specific denial. N.C. Gen. Stat. 25-3-308(a)
cmt. 1 (2009). Once put in issue, [t]he burden is on the party
claiming under the signature to prove that the signature is valid.
Id.
-
Petitioner contends Respondent did not raise objection to the
stamp at issue and therefore the burden remained upon Respondent to
introduce evidence invalidating the purported indorsement. Contrary
to Petitioners assertion, this Courts review of the transcript
indicates that counsel for Respondent did in fact challenge the
stamps validity, stating: you have to have more than a stamp and we
dont know who had authority [at Mortgage Lenders] to authorize the
sale of (unintelligible) to [Emax]. We conclude that this challenge
by Respondent before the trial court was a specific denial of the
signatures authenticity, thereby placing the burden upon Petitioner
to put on evidence establishing authorization.
Furthermore, Comment 1 to North Carolina General Statutes
25-3-308 defines presumed to mean that until some evidence is
introduced which would support a finding that the signature is
forged or unauthorized, the plaintiff is not required to prove that
it is valid. Id. In contrast to the stamp at issue, a handwritten
signature accompanies each of the other stamps on the Note
introduced by Petitioner before the trial court. The stamp
purporting to transfer the Note from Residential to Petitioner, for
example, bears the apparent handwritten signature of Judy Faber,
identified as Residentials vice president. This signature provides
at least some evidence that this stamp was executed with the
requisite intent and authority. Whether a stamp bearing an apparent
handwritten signature is sufficient competent evidence of the
purported indorsement, however, is not before this Court as
Respondent challenges the only stamp without a handwritten
signature. The omission of a handwritten signature with respect to
the challenged stamp is competent evidence from which the trial
court could conclude that this particular stamp was not executed by
an authorized individual and is therefore facially invalid
indorsement. Thus, even if Respondent had failed to object to the
stamp, which it did not, the burden properly remained upon
Petitioner to prove its validity.
We further note it would be illogical to place this particular
burden upon Respondent, as Petitioner is in possession of the Note
and is in the best position to prove or disprove the authenticity
of the signatures included thereon. See Bank of Statesville v.
Blackwelder Furniture Co., 11 N.C. App. 530, 532, 181 S.E.2d 785,
786 (1971) (holding that the burden of establishing the authority
behind an indorsement was properly placed on the bank because as a
purchaser of the instrument, [the bank] was in the best position to
inform itself as to the authority of the seller-indorser). Because
we cannot presume the authenticity of this stamp as a signature,
and because Petitioner offered no evidence establishing its
authenticity other than the Note itself, the stamp is a valid
signature only if it is self-authenticating. However, as our
Supreme Court has explained:
It is well settled by the decisions of this Court, as well as of
other courts, and by approved text-writers, that words written on
the back of a negotiable instrument, purporting to be an
indorsement by which the instrument was negotiated, do not prove
themselves. The mere introduction of a note, payable to order, with
words written on the back thereof, purporting to be an indorsement
by the payee, does not prove or tend to prove their
genuineness.
Whitman, Inc. v. York, 192 N.C. 87, 133 S.E. 427, 430 (1926)
(citations omitted). In the case sub judice, Petitioner has offered
only a bare assertion that the challenged stamp is a facially valid
indorsement. Absent an allonge, testimony, or other evidence
indicating that the stamp is an authorized signature, it would be
imprudent for this Court to accept Petitioners position. We hold
that the facial invalidity of this stamp is competent evidence from
which the trial court could conclude the stamp is unsigned and
fails to establish negotiation from Mortgage Lenders to Emax.
Consequently, Petitioner has failed to establish it is the holder
of the Note, and the trial court did not err in dismissing
Petitioners summary foreclosure proceedings against Respondent. For
the foregoing reasons, the trial courts order is
Affirmed.
Judges THIGPEN and McCULLOUGH concur.
[1] Since rights sought to be enforced under [the provisions of
the North Carolina General Statutes governing foreclosure pursuant
to a power of sale] are instituted by filing notice instead of a
complaint and summons and
DENISE.SUBRAMANIAMHighlight
DENISE.SUBRAMANIAMHighlight
DENISE.SUBRAMANIAMHighlight
-
are prosecuted without regular pleadings, they are properly
characterized as `special proceedings. Id. at 321, 325 S.E.2d at
2-3.
[2] The North Carolina Legislature added a fifth consideration,
which expired 31 October 2010, requiring the clerk to determine
whether the underlying mortgage debt was a subprime home loan, and,
if it was a subprime loan, whether written notice of the
foreclosure proceedings was provided at least 45 days prior to
filing notice of the foreclosure hearing with the superior court.
See N.C. Gen. Stat. 45-102 (2009); In re Simpson, ___ N.C. App.
___, ___, 711 S.E.2d 165, 169 (2011) (citing N.C. Gen. Stat.
45-21.16 (2009)).
-
Exhibit A - Page 1 of 2
EXHIBIT B
-
NO COA10-361
NORTH CAROLINA COURT OF APPEALS
Filed 3 May 2011IM THE MATTER OF THE FORECLOSURE BY'DAVID A
SIMPSON, P C , SUBSTITUTETRUSTEE, OF A DEED OF TRUST EXECUTEDBY REX
T GILBERT, JR AMD DAMIELA LGILBERT, HUSBAND AMD WIPE, DATED MAY5,
2006 AMD RECORDED OM MAY 10, 2006,IM BOOK 219 AT PAGE 53 OF THE
HYDECOUNTY PUBLIC REGISTRY
Hyde CountyMo 09 SP 09
Appeal by Respondents from order entered 18 August 2009 by
Judge
Marvin K Blount, III zn Hyde County Superior Court Heard zn
theCourt of Appeals 12 October 2010
Katherzne 8 Parker-Lowe, for respondent-appellants.The Law
Offzce of John 7 Bengamzn, Zr , P.A. , by John 7Ben7amzn, Zr. and
James 22. AThzte for petztzoner-appellee.
HUNTER, JR , Robert M , Judge
Respondents Rex T Gz.lbert, Jx and his wife Daniela L
Gilbert,appeal from the trial court's Order authorizing David A
Szmpson,P C , as Substitute Trustee, to proceed with foreclosure
under apower of sale in the Deed of Trust recorded zn Book 219 at
Page 53in the Hyde County Register of Deeds We reverse
-
I. Factual and Procedural HistoryOn 5 Nay 2006, Respondent Rex T
Gilbert, Zr executed an
adjustable rate note ("the Note" ) to refinance an existing
mortgageon his home According to the terms of the Mote, Nr Gilbert
promi. sedto pay a principal amount of $525, 000 00 plus interest
to FirstNational Bank of Arizona The Mote was secured by a Deed of
Trust,executed by Mr Gilbert and his wi. fe, Daniela L Gilbert, on
realproperty located at 134 Nest End Road, Ocracoke, North Carolina
TheDeed of Trust identified First National Bank of Arizona as the
lenderand Matthew J Ragaller of Casey, Grimsley & Ragaller,
PLLC as thetrustee
The record reveals that, during 2008, Respondents ceased
makingpayments on the Note and made an unsuccessful attempt to
negotiatea modification of the loan On 9 March 2009, a Substitution
ofTrustee was recorded in the Hyde County Regi. ster of Deeds,
which
purports to remove Matthew Ragaller as the trustee of the Deed
ofTrust and appoint his successor, David A Simpson, P C ("Substi.
tuteTrustees) The Suhstrtutron of Trustee rdentrfred Deutsohe
BankTrust Company Americas as Trustee for Residential Accredit
Loans,Inc Series 2006-QA6 ("Petiti.oner" ) as the holder of the
Mote andthe lien created by the Deed of Trust
On 12 Narch 2009, the Substi. tute Trustee commenced this
acti.onby filing a Notice of Hearing on Foreclosure of Deed of
Trust with
-
the Hyde County Clerk of Superior Court pursuant to secti.on
45-21 16of our General Statutes M C Gen Stat 5 45-21 16 (2009)
TheMot, i.ce of Heax'ing stated, "the current holder of the
foregoing Deedof Trust, and of the debt secured. thereby, is
Deutsche Bank TrustCompany Americas as Trustee for Residential
Accredit Loans, IncSeries 2006-QA6
In a letter dated 5 April 2009, Mr Gilbert purported to
exercisehi. s right to rescind the loan txansaction he entered into
wi. th theoriginal lender, First National Bank of Axi. zona,
pursuant to thefederal Truth in Lending Act, 15 U S C 5 1635 As
justi. fi.cati.onfor his purported resci. ssion, Gi.lbert alleged
that the Truth inLending Disclosure Statement provided by First
National Bank ofArizona failed to accurately pxovi. de all required
materi. aldisclosures including, inter alia, the correct annual
percentagerate and payment schedule The Substitute Txustee
responded witha letter from GMAC ResCap, in which it denied any
materi. al disclosureerrors were made and xefused to rescind the
loan transaction
The foreclosure hearing was held on 2 June 2009 befoxe the
Clerkof Superior Court of Hyde County The Honorable Sharon G
Sadlerentered an Order on 17 June 2009, pexmitting the Substi. tute
Trustee
to proceed with the foreclosure In the Order, the
Clerkspecifically found, inter a2.za, that Petitioner was the
holdex ofthe Mote and Deed of Trust that i.t sought to foreclose
and the Note
-
eve. denced a valj d debt owed by Mr Qj.lbert Respondents
appealedthe Order to superj or court
The matter came on for a de novo hearjng on 18 August 2009
beforethe Honorable Marvj. n K Blount, III, xn Hyde County Super j
or CourtDurj. ng the hearj. ng, the trj.al court admj. tted j.nto
evj.dence acertj. fxed copy of the Mote and the Deed of Trust and
two affxdavj. tsattestjng to the valjdj. ty of Qj.lbert's
indebtedness pursuant to theMote, and that Deutsche Bank Trust
Company Amerjcas as Trustee forReszdentzal Accredit. t Loans, Inc
Serj es 2006-QA6 j.s the current ownerand holder of the Note
Addxtxonally, Petj.tj.oner introduced theorj.gjnal Mote and Allonge
for the trz. al court's j.nspectzon
Revj.ewzng the record before thxs Court, the Allonge containsa
serves of j.ndorsements eve. dencxng the alleged assignments of
theMote, as follows
PAY TO THE ORDER OFFj.rst Nato. onal Bank of NevadaWITHOUT
RECOURSE BY
[Sj.gnature]%MY HAWKIMS, ASSISTANT VICE PRESIDENTFIRST NATIONAL
BANK OF ARIZONA
Pay to the order ofRESIDENTIAL FUNDIMQ CORPORATIONWithout
RecourseFIRST NATIONAL BANK OF NEVADABy [Sjgnature]Deutsche Bank
Matj. onal TrustCompany, F/K/A Bankers TrustCompany of Californj.
a, M Aas Custodj an as Attorney xn Fact
-
[Illegible Name and Titlel
PAY TO THE ORDER OFDeutsche Bank Trust Company Americas as
TrusteeWITHOUT RECOURSEResidential Funding CorporationBY
[Signature]Judy Faber, Vice President
Respondents made two arguments at the hearing Fi.rst,Respondents
argued that the debt evidenced by the Mote no longerexisted, as Nr
Gilbert had rescinded the transacti. on for the loanwith First
National Bank of Arizona Petitioner objected toRespondents' resci.
ssion argument as being a defense in equity and,as such, inadmi.
ssible in a proceeding held pursuant to M C Gen Stat5 45-21 16 The
trial court agreed and refused to let Respondents'expert witness
testify as to alleged material errors in the Truthin Lending
Disclosure Statement, which Mr Gilbert alleged permittedhim the
right to rescind the loan Second, Respondents argued. thatPeti.
tioner had not produced suffici. ent evi. dence to establish
thatDeutsche Bank Trust Company Americas as Trustee for Residenti.
alAccredi. t Loans, Inc Series 2006-QA6 was the holder of the
Mote
Based on the preceding evidence, the trial court entered anorder
on 18 August 2009 in which it found, izzt:er a2ia Mr
Gilbertexecuted the Mote and, with his wife, executed a Deed of
Trust infavor of Fi.rst National Bank of Arizona, secured by the
real propertydescribed in the Deed of Trust, a valid debt exists
and is owed by
DeniseHighlight
-
Gilbert't to Petitioner, Gilbert is in default under the Note
and Deedof Trust, proper notice of the foreclosure hearing was
given to allparties as required by N C Gen Stat 5 45-21 16,
Petitioner wasthe current holder of the Note and the Deed of Trust
The trial courtconcluded as a matter of law that the requirements
of N C Gen Stat
45-21 16 had been satisfied Based on these findings
andconclusion of law, the trial court authorized the Substitute
Trusteeto proceed with the foreclosure Respondents timely entered
noticeof appeal
II AnalysisA party seeking permission from the clerk of court to
proceed
with a foreclosure pursuant to a power of sale contained in a
deedof trust must prove the following statutory req'uirements (1)
theparty seeking foreclosure is the holder of a valid debt, (2)
defaulton the debt by the debtor, (3) the deed of trust provides
the rightto foreclose, (4) proper notice was given to those parties
entitledto notice pursuant to section 45-21 16(b) N C Gen Stat45-21
16 (d) (2009) The General Assembly added a fif th requirement,which
expired 31 October 2010 "that the underlying mortgage debtis not a
subprime loan, " or, if it is a subprime loan, "that
thepre-foreclosure notice under G S 45-102 was provided in all
materialrespects, and that the periods of time established by
Article 11 ofthis Chapter have elapsed[ ]" Id. The role of the
clerk of court
-
z.s limited to making a determz. natz. on on the matters speci.
fz.ed bysection 45-21 16(d) See Nosier ex r'el. . Szmon v Druzd
IIzlls IazzdCo , Inc. , 199 M C App 293, 295-96, 681 S E 2d 456,
458 (2009)If the clerk's order is appealed to superior court, that
court's dezzovo bearzng is lzmz. ted to making a determznatzon. on
the same z.ssuesas the clerk of court See zd.
The trial court's order authorizing the foreclosure to
proceedwas a final judgment of the superior court, therefore, thz.
s Courtbas jurisdz. ctz.on to hear tbe instant appeal M C Gen
Stat7A-27(b) (2009) Our standard of revz. ew for thz. s appeal,
where tbetrz. al court sat wz. thout a jury, z.s "'whether
competent evz. denceexists to support the trial court's findings of
fact and whether theconclusions reached were proper in light of the
fz.ndz. ngs '" In reAdams, M C App , , 693 S E 2d 705, 708 (2010)
(quoting Inre Foreclosure of Azalea Garden Bd. 6 Care, inc , 140 M
C App 45,50, 535 S E 2d 388, 392 (2000) )
We note the trial court classifz. ed multiple conclusions of
lawas "fzndzngs of fact " We have previously recognized " tt]
beclassi. fi.cation of a determination as either a findz. ng of
fact or aconclusion of law is admittedly di. ffz.cult " Zn xe
IIelms, 127 M CApp 505, 510, 491 S E 2d 672, 675 (1997) Generally,
"anydeterminatz. on requiring the exercise of judgment or tbe
applicatz. onof legal prznciples i.s more properly classified a
conclusion of law "
-
Zd. (cztations omztted) Any determznatzon made by
"'logzcalreasonzng from the evzdentzaxy facts, '" however, "zs more
properlyclasszfzed a fzndzng of fact " Zd. (quotzng guzck v. guzck,
305 M C446, 452, 290 S E 2d 653, 657-58 (1982) ) When thzs Court,
determinesthat fzndzngs of fact and conclusxons of law have been
mzslabeledby the trzal couxt, we may reclasszfy them, whexe
necessary, befoxeapplyzng our standard of revzew 1W. C. State Bar
v. Key, 189 M CApp 80, 88, 658 S E 2d 493, 499 (2008) (cztzng I'zz
re He2ms, 127 M CApp at 510, 491 S E 2d at 675)
Lookzng to the txz.al court's Order, we conclude that
thefollowzng "fzndzngs of fact" are determinatzons that requzred
theapplzcatzon of legal prznczples and are more
approprzatelyclasszfzed as concluszons of law a valzd debt exzsts
and zs owedto Deutsche Bank Trust Company Amerzcas as Trustee for
ReszdentzalAccx'edzt Loans, Inc Serzes 2006-QA6, proper notxce was
gzven to andrecezved by all paxtz. es as requzred by M C Gen Stat 5
45-21 16and the Rules of Czvzl Procedure, Deutsche Bank Trust
CompanyAmexzcas as Trustee for Reszdentzal Accredz. t Loans, Inc
Serzes2006-QA6 zs the current owner and holder of the Mote and Deed
of TrustSee Zn re Watts, 38 M C App 90, 92, 247 S E 2d 427, 428
(1978)(notzng upon the appeal of a M C Gen Stat 5 45-21 16
speczalproceedzng the trzal court's conc2. uszons oS 2.aw zncluded
theexzstence of a valzd debt, the rzght to foreclose under the deed
of
-
trust, and proper notice to the mortgagors), see a2so Conno22y
v.Potts, 63 M C App 547, 549, 306 S E 2d 123, 124 (1983) (same)
Inlight of this reclassification of the trial court's findings of
factand conclusions of law, we turn to the issues raised on
appeal
1. Rescission of the Loan TransactionRespondents raise several
arguments alleging the trial court
erred by refusing to consider their defense to the
foreclosureaction, that the debt Peti. tioner sought to foreclose
was not a validdebt a required element under the statute for
foreclosure by powerof sale See M C Qen Stat 5 45-21 16(d)(i)
(requiring, intera2ia, that the clerk of court must determine that
a valid debtexists) Respondents contend the debt is not valid
because NrGilbert rescinded the transaction by which he obtained
the loan fromFirst Mational Bank of Arizona pursuant to the federal
Truth inLending Act ("TILA"), 15 U S C gg 1601-1667f, and the
FederalReserve Board's Regulation Z, 12 C F R 5 226 1- 58 We
concludethe trial court did not err
The admissibility of evidence in the tri.al court is based
uponthat court' s sound discretion and may be disturbed on appeal
onlyupon a finding that the decision was based on an abuse of
discretionSibyls v. Mayo, 162 M C App 549, 561, 591 S H 2d 905, 913
(2004)Here, we conclude the trial court properly refused to
considerRespondents' evidence of rescission Resci.ssion under the
TILA is
-
an equitable remedy See Am. Nor tg. Network, Inc. v. Slzel ton,
486F 3d 815, 819 (4th Cir 2007) ("' [A] lthough the right to
rescind[under the TILA] i.s [statutory], it remains an. equz. table
doctrinesubject to equz. table considerati. ons '" (quoting Brown
v. Nat~lPermanent Fed Sav. Z Ioan Ass'n, 683 P 2d 444, 447 (D C Cir
1982) )Whi. le legal defenses to a foreclosure under a power of
sale areproperly rai. sed in a hearing held pursuant to secti.on
45-21 16,equz. table defenses are not Alatts, 38 H' C App at 94,
247 S E 2dat 429 As we have previously stated, a hearing under
section45-21 16 is "not intended to settle all matters in
controversybetween mortgagor and mortgagee, nor was it designed to
provide asecond procedure for invoking equz. table relief " Zd. A
partyseeking to rai. se an equitable defense may do so in a
separate civi. laction brought in superior court under secti.on
45-21 34 Zd. , I CGen Stat 0 45-21 34 (2009) (stating that a party
with a legal orec(uz. table interest in the subject property may
apply to a superiorcourt judge to enjoin a sale of the property
upon legal or equitablegrounds) Accordingly, the trial court
properly concludedRespondents' argument that Mr Gilbert had
rescinded the loantransacti. on, invali. ding the debt Peti. tioner
sought to foreclose, wasan equitable defense and not properly
before the trial courtRespondents' argument i.s without merit
1 During the pendency of this action, the Gi.lberts filed a
-
2. Evidence that Petitioner was the Ownex and. Holdexof Mr.
Gilbert's Promissory Note
Respondents also argue the 'trial court erred in. ordering
theforeclosure to proceed, as Petitioner did not prove that it was
theholder of the Mote with the right to foreclose under the
instrumentas requz. red by section. 45-21 16(d)(i) and (iii) We
agree
A "foreclosure under a power of sale is not favored in the
lawand its exercise will be watched with jealousy " In re
Foreclosureof Goforth Props. i Inc, 334 M C 369, 37S, 432 S E 2d
855, 859 (1993)(citations and internal quotation marks omitted)
That the partyseeking to foreclose on a promissory note is the
holder of said noteis an. essential element of the action and the
debtor is "entitledto demand strict proof of this element "
I&2.es v. Myers, 38 M CApp 525, 528, 248 S E 2d 385, 388
(1978)
For the trial court to find sufficient evidence that
Petitioneris the holder of a valid debt in accordance with section
45-21 16(d),"this Court has determined that the following two
questions must be
separate action against Deutsche Bank Trust Company
Americas,Residential Funding, LLC, GMAC Mortgage, LLC, and David A
Simpson,P C to litigate, inter alia, their TILA claim in Hyde
County SuperiorCourt The defendants removed the action to federal
court SeeGz, lbezt v' Deutsche Bank Trust Co. Americas, slip op at
1,4 09-CV-181-D, 2010 WL 2696763 (E D M C t'uly 7,
2010),reconsideration denied, 2010 WL 4320460 (E D M C Oct 19,
2010)Because the Gilberts' claim was filed more than three years
afterthe loan transaction was completed, the federal trial court
dismissedthe action for failure to state a claim upon which relief
could begranted Id at , slip op at 5
-
answered in tbe affirmative (1) 'is there suffici. ent
competentevidence of a valid debt~', and (2) 'is there suffici. ent
competentevidence that [the party seeking to foreclose is] the
holder[ ] oftbe notes [that evidence that debt] ~'" Adams, N C App
at693 S E 2d at 709 (quoting In re Cooke, 37 M C App 575, 579, 246S
E 2d 801, 804-05 (1978)), see M C Gen Stat % 45-21 16(d) (2009)(in
order for the foreclosure to proceed, the clerk of court mustfind.
, znter a2.za, tbe existence of a "valid debt of which the
partyseekzng to foreclose zs the holder, " and a "right to
foreclose underthe instrument" securing the debt) (emphasis
added)
Establishing that a party i.s tbe bolder of the note is essenti.
alto protect tbe debtor from the threat of multiple judgments on
tbesame note
If such proof were not required, the plaznti. ffcould negotiate
tbe instrument to a third partywho would become a holder zn due
course, bringa suit upon the note in her own name and obtaina
judgment in ber favor Requiring proofthat tbe plaintiff is the
bolder of tbe note attbe tzme of ber suit reduces tbe possibility
ofsuch an inequitable occurrence
Izles, 38 M C App at 527, 248 S E 2d at 387We have previously
determined that the defini. tion of "holder"
under the Uni. form Commercial Code ("UCC"), as adopted by
NorthCarolina, controls the meaning of tbe term as it used zn
secti.on45-21 16 of our General Statutes for foreclosure acti.ons
under a
-
power of sale See Connolly, 63 M C App at 550, 306 S H 2d at
125,Adams, M C App at , 693 S E 2d at 709 Oux Genexal
Statutesdefine the "holder" of an instxument as "[tjhe pexson in
possessionof a. negoti. able instxument that i.s payable either to
bearer or toan identifi. ed person that is the person. in
possession " N C GenStat 5 25-1-201(b) (21) (2009), Econo-Travel
Motor Hotel Corp. v'Taylor, 301 M C 200, 203, 271 S E 2d 54, 57
(1980) Furthermore,a "'[p]erson. ' means an indivi. dual,
corporati. on, business trust,estate, trust or any other legal or
commercial entity " N CGen Stat h 25-1-201 (b) (27) (2009)
As addressed above, we conclude the trial court properly
foundthat a valid debt existed The remaining i.ssue before this
Courtis whether there was competent evidence that Petiti. oner was
theholder of the Mote that evidences Nr Gi.lbert's debt
In suppoxt of its argument that it provided competent evi.
denceto support the txi.al court's findings, Petitioner fi.rst
points toits production of the original Mote wi. th the Allonge at
the de novohearing, as well as its intxoduction into evi. dence
true and accuratecopies of the Mote and Allonge Petitioner asserts
this evidence"plainly evidences the transfers" of the Note to
Petitioner Necannot agxee
Under the UCC, as adopted by Moxth Carolina, "[ajn instrumentis
txansfexred when it is delivered by a person other than its
issuer
-
for the purpose of giving to the person receiving delivery the
rightto enforce the instrument " M C Gen Stat 5 25-3-203(a)
(2009)Production of an original note at trial does not, in itself,
establi. shthat the note was transferred to the party presenting
the note withthe purpose of giving that party the right to enforce
the instrument,
as demonstrated zn ConnoZZy, 63 M C App at 551, 306 S E 2d at
125,and Smathers v. Bmathers, 34 M C App 724, 726, 239 S E 2d 637,
638
(1977) (holding that despite evidence of voluntary transfer
ofpromissory notes and the plaintiff's possession thereof,
theplaintiff was not the holder of the note under the UCC as the
noteswere not drawn. , issued, or indorsed to her, to bearer, or in
blank"[T]he plaint'. ff testified to some of the circumstances
under whichshe obtained possession of the notes, but the trial
court made nofindings of fact wi. th respect thereto ")
In CoxznoZZy, determining who had possession of the note
became
the critical question for the foreclosure proceeding 63 M C
Appat 551, 306 S H 2d at 125 Several years prior to the
foreclosureproceedings at issue in CoznoZZy, the petitioners
obtained a loanfrom a bank and pledged as collateral a promissory
note that waspayable to the petitioners by assigning and delivering
the note tothe bank Id at 549, 306 S H 2d at 124 After obtaining
theirloan, the petitioners sought to foreclose on the promissory
note anddeed of trust, which was in the bank's possession, but were
denied
-
at the special proceeding before the clerk of court Xd at
548,306 S E 2d at 124 Tbe petj tj.oners appealed the decxsxon to
super&orcourt Xd. Dura. ng tbe de novo bearding, the petj.
tj.oners testz. fj.edtheir loan to the bank bad been paj.d, but
"they had left tbe [] noteat the bank, for securj. ty purposes " Zd
at 551, 306 S E 2d at 125The petj. txoners, however, "introduced
tbe orjgj.nals of tbe note anddeed. of trust" durj. ng the hearj.
ng 1d. Tbe trz. al court found thebank was jn possessj. on of the
note and concluded, as a matter of law,tbe petxtj. oners were not
tbe holders of the note at the j.nstxtutxonof tbe foreclosure
proceedings, the foreclosure was agar. n denj edConnolly, 63 M C
App at 550, 306 S E 2d at 124-25 On appeal, tbj.sCourt concluded
that despite the fact that the party seekj.ngforeclosure jntroduced
tbe orjgj.nal note at the tjme of the de novohearjng, the trz. al
court's fxndjngs of fact dz. d not address whetherthe pets.
tj.oners were xn possess'. on of the note at the time of thetrial,
tbe trial court's judgment was vacated and remanded Zd at551, 306 S
E 2d at 125-26
Sjmj.larly, bere, the trial court's fj.ndxngs of fact do
notaddress who bad possessjon of Mr Gj lbert's note at the tame of
thede novo bearding Wz. thout a determxnatj. on of wbo bas pbysj
calpossessj. on of the Mote, the trj.al court cannot determz. ne,
under theUCC, the entity that xs the holder of the Mote See M C Gen
Stat
25-1-201(b) (21) (defxnxng "bolder" as "the person zn
possession
-
of a negotiable instrument that is payable either to bearer or
toan identified person that is the person zn possession")
(emphasisadded), Connolly, 63 N C App at 550, 306 S H 2d at 125
("It is thefact of possession which is significant in determining
whether aperson is a holder, and the ahsence of possession defeats
thatstatus ") (emphasis added) Accordingly, the trial
court'sfindings of fact do not support the conclusion of law that
Petitioneris the holder of Nr Gilbert's note
Assuming arguendo that production of the Mote was evidence ofa
transfer of the Note pursuant to the UCC and that Petitioner waszn
possession of the Mote, this is not sufficient evidence
thatPetitioner is the "holder" of the Mote As di. scussed zn
detailbelow, the Mote was not indorsed to Petitioner or to bearer,
aprerequisite to confer upon Petitioner the status of holder
underthe UCC See M C Gen Stat 5 25-1-201(b)(21) (requiring that,
tobe a holder, a person must be in possession of the note payable
to
bearer or to the person in possession of the note) " ' [Nj
erepossession' of a, note by a party to whom the note has neither
beenindorsed nor made payable 'does not suffice to prove ownership
orholder status '" Adams, M C App at , 693 S E 2d at 710
(quoting Econo-Travel Motor Hotel Corp. , 301 M C at 203, 271 S
E 2dat 57)
-
Petiti. oner acknowledges that following the signing of the
Moteby Mr Gilbert, the Mote was sequentially assigned to
severalentities, as indi. cated by the seri. es of indorsements on
the Allonge,reprinted above Respondents argue these indorsements
present two
problems First, Respondents state that Petitioner did not
provideany evidence to establi. sh that Deutsche Bank Mati. onal
Trust Companyhad the authority, as the attorney-in-fact for Fi.rst
Mati. onal Bankof Nevada, to assign the Note to Resi.dential
Funding Corporation inthe second assignment Respondents make no
argument and ci.te no
authority to establi. shthat such evi. dence is needed
Therefore,we do not address the merits of thi s alleged error and
deem itabandoned See M C R App P 28 (6) (2011) ("Issues not
presentedin a party's bri. ef, or in support of whi. ch no reason
or argument i.sstated, wi. ll be taken as abandoned ")
Second, Respondents argue Petitioner has not offered suffi.
cientevidence that Deutsche Bank Trust Company Americas as Trustee
forResidential Accredit Loans, Inc Series 2006-QA6 was the holder
ofthe Mote and, thus, the party enti. tied to proceed with the
foreclosureactj.on Ne agree
Respondents note the third and final assignment on the
Allongewas made to "Deutsche Bank Trust Company Americas as
Trustee, " whi. ch
is not the party asserting a security interest in
Respondents'property, thi. s action was brought by Deutsche Bank
Trust Company
-
Americas as Trustee for Residential Accredit Loans, Inc
Seri.es2006-QA6, tbe enti. ty the trial court found to be the owner
and holderof the Mote Section 3-110 of tbe UCC, as codified in our
GenexalStatutes, states in pertinent part
For the purpose of determining the holder of aninstxument, the
following rules apply
(2) If an instxument is payable to (i) a trust,an estate, oz a
person described as trustee orrepresentative of a txust or estate,
theinstrument is payab2e to the trustee, tberepresentative, ox a
successor of either,whether or not tbe beneficiary ox estate is
alsonamed
M C Gen Stat 5 25-3-110 (c) (2009) (emphasis added)Additionally,
the official comments to this section of the UCC state,zn part,
"This provi. sion merely determines who can deal with aninstxument
as a holdex It does not determine ownership of theinstrument or its
proceeds " I'd 5 25-3-110, Official Comment. 3
In the present case, tbe Mote is clearly indoxsed "PAY TO
THEORDER OF Deutsche Bank Tx'ust Company Americas as Trustee "
Thus,
pursuant to section 25-3-110(c) (2), the Note is payable to
DeutscheBank Trust Company Americas as Trustee See Zd Because
tbe
indorsement does not identi fy Petitioner and zs not indorsed in
blankor to bearer, i.t cannot be competent evidence that Peti.
tioner is theholder of the Note See M C Gen Stat 5 25-1-201(b) (21)
(defining
-
"holder" as "[t]he person in possession of a negotiable
instrumentthat is payable either to bearer or to an identified
person that isthe person zn possession"), Econo-Travel Motor Hotel
Corp. , 301 M Cat 204, 271 S H 2d at 57 (concluding that where the
defendantsproduced a copy of the note indorsed to an entity other
than theplaintiff, the "defendants established that plaintiff was
not theowner or holder of the note")
In addition to the Mote and Allonge, Petitioner points to
twoaffidavits provided by two GNAC Mortgage employees as
furtherevidence that the trial court's findings are based on suffi.
cientcompetent evi. dence Again, we disagree
The first affidavit is an Affidavit of Indebtedness by
JeffreyStephan ("Stephan" ) ' In his affidavit, Stephan averred,
inter
2 This Court finds troubling that GNAC Mortgage, LLC wasrecently
found to have submitted a false affidavit by Signing OfficerJeffrey
Stephan zn a motion for summary judgment against a mortgagorin the
United States District Court of Maine Judge John H Rich,III
concluded that GNAC Mortgage submitted Stephan' s false affidavitin
bad faith and levi. ed sanctions against GNAC Mortgage, stating
[T]he attestation to the Stephan affidavit wasnot, in fact,
true, that is, Stephan did not knowpersonally that all of the facts
stated in theaffidavit were true GNAC [Nortgage] wason notice that
the conduct at issue here wasunacceptable to the courts, which rely
on swornaffidavits as admissible evidence in connection.with
motions for summary judgment In 2006, anidentical jurat signed
under i.denti. calcircumstances resulted in the imposition.
ofsanctions against GNAC [Mortgage] in Florida
-
-20-aZia, he was a limited signing officer for GMAC Mortgage,
thesub-servicer of Mr Gilbert's loan, and as such, was "familiar
withtbe books and records of [GNAC Mortgage1, specifically payments
madepursuant to the Mote and Deed of Trust " Accordingly,
Stephantestifi. ed as to the principal amount of Mr Gilbert's loan
and tohis history of loan payments Stephan further testi. fied that
afterthe Mote and Deed of Trust were executed they were "delivered"
tothe original lender, Pi.rst Mational Bank of Arizona, tbe
originallender then "assigned and transferred all of its right,
title andinterest" to First National Bank of Nevada, which, in
turn, assignedall its rights, title, and interest in the
instruments to ResidentialFunding Corporation The final assignment
to which Stephan averredis an assignment and securitizati. on of
the Mote and Deed of Trustfrom Residential Funding Corporation to
"Deutsche Bank Trust CompanyAmericas as Trustee " Stephan then
makes the conclusory statement,
"Deutsche Bank Trust Company Americas as Trustee for
ResidentialAccredit Loans, Inc Series 2006-QA6 is the current owner
and bolderof the Mote and Deed of Trust described herein
Whether Deutsche Bank Trust Company Americas as Trustee
forResidential Accredit Loans, Inc Series 2006-QA6 is the owner
andholder of the Mote and Deed of Trust is a legal conclusion that
is
Zames v. V S. Bank Mat. Ass~n, 272 P R D 47, 48 (D Me 2011)
-
to be detexmined by a court of law on the basis of factual
allegationsAs such, we disregard Stephan's conclusion as to the
identity of the"owner and holder" of the instruments See Lemon v
Combs, 164 M C
App 615, 622, 596 S H 2d 344, 349 (2004) {"'Statements in
affidavitsas to opinion, belief, or conclusions of law are of no
effect(cLuoting 3 Am Jur 2d, Affidavits 5 13 (2002))), see a2so
SpeedwayMotorsports Inter Ltd. v Bronwen Energy Trading, Ltd. , M C
App
n 2, S 8 2d , n 2, slip op at 12 n 2, Mo 09-1451(Feb 15, 2011)
{rejecting a party's contention that this Court mustaccept as true
all statements found xn the affidavits in the xecord,stating, "our
standard of review does not req'uvre that we accept awitness'
chaxacterxzatxon of what 'the facts' mean") While Stephanreferred
to a Pooling and Servicing Agxeement ("PSA") that allegedlygoverns
the secuxxtxzation of the Note to Deutsche Bank Trust
CompanyAmericas as Trustee, the PSA was not included xn the recoxd
and will
not be considered by this Court See M C R App P 9(a) (2011){"In
appeals fx'om the trial division of the General Court of
Justice,review is solely upon the record on appeal, the verbatim
transcriptof proceedings, xf one is designated, and any other items
filedpursuant to this Rule 9 ") The record, xs void of any evidence
theMote was assigned and securitized to a trust
We also note that Stephan alleged no facts as to who possessesMr
Gilbert's note, other than his averment that the Note was
-
"delivered" to the original lender, First National Bank of
ArizonaStephan referred to a statement made by counsel for GNAC
Mortgagethat the original Mote "would be brought to the foreclosure
hearing, "
but he did not provide any facts from which the trial court
coulddetermine who has possession of the Mote As demonstrated
byConno22y, discussed above, production of a note at trial is
notconclusive evidence of possession 63 M C App at 551, 306 S E
2dat 125 Thus, we conclude Stephan's affidavit is not
competentevidence to support the trial court's conclusion that
Deutsche BankTrust Company Americas as Trustee fox Residential
Accredit Loans,Inc Series 2006-QA6 is the owner and holder of Nr
Gilbert's note
Petitioner also provided the affidavit of Scott Zeitz("Zeitz"),
who alleged in his affidavit to be a litigation analystfor GMAC
Plortgage Zeitz's basis for his affidavit testimony is thathe works
with "the documents that relate to account histories andaccount
balances of particular loans" and that he is familiar withMr
Gilbert's account Accordingly, Zeitz testified to the detailsof Mr
Gilbert's loan and the terms of the Note Zeitz's
affidavit,substantially similar to the affidavit of Jeffrey
Stephan, alsoaverred to the transfer of the Mote and Deed of Trust
through theseries of entities indicated on the Allonge, stating in
part
Residential Funding Corporation sold, assigned.and transferred
all of its right, title andinterest in and to the Mote and Deed. of
Trust
-
-23-to Deutsche Bank Trust Company Americas asTrustee for
Residential Accredzt Loans, IncSeries 2006 QA6 Thzs zs ref1ected on
theAllonge to tlze Note, a true and accurate copyof wlzzclz zs
attaclzed and incorporated hereto asEXHIBIT 5 (Emphasis added )
This statement is factually zncorrect, the Allonge in the
recordcontains no indorsement to Deutsche Bank Trust Company
Americas as
Trustee for Residential Accredit Loans, Inc Ser zes 2006-QA6
Zeztzfurther stated that "Deutsche Bank Trust Company Amerz. cas as
Trusteefor Residential Accredit Loans, Inc Series 2006-QA6 is tbe
currentowner and holder of the Note and Deed of Trust " This
statement isa legal conclusion postured as an allegation. of fact
and as such willnot be considered by this Court See Lemon, 164 M C
App at 622,596 S E 2d at 349
Unlzke Jeffrey Stephan, Zeitz stated that Deutsche Bank
TrustCompany Americas as Trustee for Resz.dential Accredit Loans,
IncSeries 2006-QA6 "has possession. of the orzginal Mote and Deed.
ofTrust " We note, however, that "[wl hen an affiant makes a
conclusionof fact, z t must appear that the af f iant had an
opportunity to observeand dzd observe matters about which he or she
testifies " Lemon,164 N C App at 622, 596 S E 2d at 348-49
(c(uoting 3 Am Jur 2dAffzdav'zts 5 13) (znternal quotation marks
omitted) Moreover,
[tj he personal knowledge of facts asserted. znan affidavit is
not presumed from a merepositive averment of facts but rather the
courtshould be shown how the affiant knew or could
-
have known. such facts and zf there zs no evz. dencefrom which
an znference of personal knowledgecan be drawn, then zt zs presumed
that such doesnot exzst
Xd. at 622-23, 596 S E 2d at 349 (quotzng 3 Am Jur 2d
Affzdavzts5 14, czted wztl2 approval. zn Currztuck Assoczates
Reszdentzal 5''sizz@v' tIol2owell, 170 M C App 399, 403-04, 612 S 8
2d 386, 389 (2005))Thus, wbzle Zeztz concluded as fact that
Deutsche Bank Trust CompanyAmerz. cas as Trustee for Reszdentzal
Accredzt Loans, Inc Serves2006-QA6 bas possesszon of the Mote, hz.
s affzdavzt provides no basz. supon which we can conclude he had
personal knowledge of this allegedfact Because of these defzczencz.
es, we conclude that nez. ther theaffzdavzt of Jeffrey Stephan nor
tbe affzdavzt of Scott Zeztz zscompetent evzdence to support tbe
trzal court' s fzndzng that DeutscheBank Trust Company Amerzcas as
Trustee for Reszdentzal AccredztLoans, Inc Serzes 2006-QA6 zs tbe
owner and holder of Nr Gzlbert'snote
XIl. ConclusionWe conclude tbe record zs lackzng of competent
evzdence
suffzczent to support that Petztzoner zs tbe owner and holder of
NrGzlbert's note and deed of trust The trz. al court, erred
znpermzttzng tbe Substztute Trustee to proceed wztb foreclosure
proceedzngs and zts order zs
-
-25-Reversed
Judges MCGEE and BEASLEY concur
-
Exhibit A - Page 1 of 2
EXHIBIT C
-
Exhibit A - Page 2 of 2
-
Judy-Faber-EXHIBIT-A.pdfJudy-Faber-Exhibit-A.pdfUS Bank is not
the Note Holder North Carolina: Bass vs. US Bank