Opinion
NO. COA12-69
10-16-2012
In the Matter of the Proposed Foreclosure of the Real Estate Deed of Trust, Executed by Bright's Creek Lot 71, LLC, to Joseph D. McCullough, Trustee for the Beneficiary, Capital Bank, N.A., dated October 4, 2006, and recorded in Book 346, Page 2094, in the Polk County Public Registry, replacing the lien of the recorded Real Estate Mortgage dated May 8, 2006, and recorded in Book 341, Page 962, in the Polk County Public Registry, and as corrected by Corrective or Scrivener's Affidavit dated May 4, 2011, and recorded in Book 386, Page 2425, in the Polk County Public Registry. See Substitution of Trustee appointing John B. Honeycutt, Jr. as Successor Trustee recorded in Book 387, at Page 1737.
Ferikes & Bleynat, PLLC, by Edward L. Bleynat, Jr., for respondent-appellant. Honeycutt Law Firm, PLLC, by John B. Honeycutt, Jr., for petitioner-appellee.
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.
Polk County
No. 11 SP 0080
Appeal by respondent from order entered 26 September 2011 by Judge Gary M. Gavenus in Polk County Superior Court. Heard in the Court of Appeals 15 August 2012.
Ferikes & Bleynat, PLLC, by Edward L. Bleynat, Jr., for respondent-appellant.
Honeycutt Law Firm, PLLC, by John B. Honeycutt, Jr., for petitioner-appellee.
HUNTER, Robert C., Judge.
Respondent-appellant, Bright's Creek Lot 71, LLC, ("respondent") appeals an order of foreclosure issued by the trial court. On appeal, respondent contends that the trial court erred in allowing the foreclosure to proceed because: (1) the deed of trust upon which the foreclosure order was entered is invalid; and (2) the petitioner-appellee ("Capital Bank" or "petitioner") impermissibly changed the collateral of the deed of trust via a scrivener's affidavit. After careful review, we affirm.
Background
This appeal arises from foreclosure proceedings initiated on real property located in Polk County, North Carolina. On 8 May 2006, respondent executed a promissory note in favor of First National Bank of Spartanburg, a Division of First National Bank of the South, in the amount of $1,620,000.00. The form on which this note was recorded was a South Carolina promissory note form. The note was secured by a South Carolina real estate mortgage executed by respondent on 8 May 2006 in favor of the same bank to encumber North Carolina real estate owned by respondent. The property was described in the South Carolina mortgage as: "Being all of Lot 71 of Bright's Creek, Phase I, Map 4 as same is shown on map thereof recorded in Map Book E at Page 1169 in the Polk County Registry." This South Carolina mortgage was recorded in the Polk County Registry on 15 May 2006.
Later in 2006, respondent executed a North Carolina deed of trust naming respondent as the grantor, Joseph D. McCullough as the trustee, and First National Bank of Spartanburg, a Division of First National Bank of the South, as the beneficiary. Near the top of the deed of trust appears text that provides the instrument was recorded for the purpose of replacing the South Carolina mortgage, which was recorded on the incorrect form. The deed of trust further provided that respondent was pledging as security the property described as "all of Lot 72 of Bright's Creek[.]" This North Carolina deed of trust was recorded on 19 October 2006.
Two days before the maturity date of the South Carolina promissory note, the note was renewed via a second South Carolina promissory note dated 5 May 2008. This second South Carolina promissory note was for the same principal amount ($1,620,000.00), was made between the same parties, and referenced the same loan number referenced in the first promissory note. The second South Carolina promissory note referenced as its security: "A mortgage dated May 8, 2006." Respondent eventually defaulted on the note.
On 4 May 2011, Joseph D. McCullough, acting as trustee, recorded a corrective or scrivener's affidavit to provide notice of " typographical or minor error(s)" in the property description provided in the North Carolina deed of trust. The affidavit stated that the description of the property in the North Carolina deed of trust was incorrectly listed as "Lot 72 of Bright's Creek" and that the correct lot was "Lot 71."
Meanwhile, First National Bank of Spartanburg, a Division of First National Bank of the South, was placed in receivership by the FDIC. Then, on 16 July 2010, the FDIC and NAFH National Bank entered into a Whole Bank Purchase and Assumption Agreement wherein NAFH National Bank purchased the assets and deposits of First National Bank of Spartanburg, a Division of First National Bank of the South, out of receivership. On 29 June 2011, NAFH National Bank executed a substitution of trustee, replacing Joseph D. McCullough with John B. Honeycutt, Jr., as trustee. On 30 June 2011, NAFH National Bank merged with Capital Bank of Raleigh to form Capital Bank, N.A., petitioner.
On 13 July 2011, Capital Bank and John B. Honeycutt, Jr., the substitute trustee, commenced a foreclosure action against respondent with the Clerk of Superior Court of Polk County. After a hearing, the clerk entered an order authorizing foreclosure on 24 August 2011. Respondent appealed this order, and on 26 September 2011, Superior Court Judge Gary M. Gavenus heard the appeal in a de novo hearing and entered an order of foreclosure finding, in pertinent part, that: (1) Capital Bank is the holder of the second South Carolina promissory note; (2) the note evidences a valid debt owned by and owed to Capital Bank; (3) the note is in default; and (4) the North Carolina deed of trust securing the second South Carolina promissory note gives the substitute trustee the right to foreclose. Respondent appeals.
Discussion
In our review of an order of foreclosure, we must determine "whether competent evidence exists to support the trial court's findings of fact and whether the conclusions reached were proper in light of the findings." In re Foreclosure by David A. Simpson, P.C., ___ N.C. App. ___, ___, 711 S.E.2d 165, 169 (2011). The party seeking to foreclose must establish the existence of:
(i) valid debt of which the party seeking to foreclose is the holder, (ii) default, (iii) right to foreclose under the instrument, (iv) notice to those entitled to such under subsection (b), (v) that the underlying mortgage debt is not a home loan as defined in G.S. 45-101(1b), or if the loan is a home loan under G.S. 45-101(1b), that the pre-foreclosure notice under G.S. 45-102 was provided in all material respects, and that the periods of time established by Article 11 of this Chapter have elapsed, and (vi) that the sale is not barred by G.S. 45-21.12A[.]N.C. Gen. Stat. § 45-21.16(d) (2011). Respondent contends that the trial court erred by finding that the first and third elements were met because: (1) the North Carolina deed of trust upon which the foreclosure order was entered is "unsound"; and (2) the scrivener's affidavit, purporting to correct the property description in the North Carolina deed of trust, impermissibly altered the collateral that secured the South Carolina promissory note. We disagree.
A. A Valid Debt of Which Petitioner is the Holder
To establish that there is sufficient evidence that a lender is the holder of a valid debt, there must be sufficient competent evidence of a valid debt, and that the party seeking foreclosure is the holder of the notes that evidence that debt. In re Adams, 204 N.C. App. 318, 321-22, 693 S.E.2d 705, 709 (2010). Respondent contends that neither of these conditions was met.
In his first argument, respondent contends that the second South Carolina promissory note is invalid because it does not reference the North Carolina deed of trust. Respondent cites no legal authority for his argument. Indeed, it is the deed of trust that must adequately identify the promissory note, and it does so when "[t]here is no intimation or suggestion that the note recited in the deed of trust was in any way at variance with the terms of the obligation as set out in the deed of trust." Walston v. Twiford, 248 N.C. 691, 693, 105 S.E.2d 62, 64 (1958). Here, the North Carolina deed of trust refers to a promissory note "of even date herewith" and is dated the same date as the first South Carolina promissory note; it also recites the same principle sum, the same maturity date, and the same parties. Furthermore, the second South Carolina promissory note identifies the first South Carolina promissory note with the same loan number, same principle sum, the same parties (as discussed below), provides that it was intended to renew "the existing loan," and references as its security a mortgage executed 8 May 2006. Respondent's argument is overruled.
In his second argument, respondent contends that the second South Carolina promissory note is invalid because it names a different payee than the first South Carolina promissory note and because the institution on whose behalf the substitute trustee initiated the foreclosure proceedings is Capital Bank, "another entity." Yet, the relationship between the payee identified in the first South Carolina promissory note, "First National Bank of Spartanburg, Div. of First National Bank of the South," and the payee identified in the second South Carolina promissory note, "First National Bank of the South," is not subject to speculation, as respondent contends. The record supports the trial court's conclusion that Capital Bank is the successor in interest to these two institutions. Our legislature and this Court have recognized that when one bank merges with or acquires the assets of another bank the newly formed bank "shall be deemed substituted for and shall have all the rights and powers of the transferring institution." N.C. Gen. Stat. § 53-17 (2011); In re Yopp, _ N.C. App. ___, ___, 720 S.E.2d 769, 775 (2011). The record contains sufficient competent evidence to support the trial court's conclusion that there is a valid debt of which Capital Bank is the holder, satisfying the first element required to authorize foreclosure in accordance with N.C. Gen. Stat. § 45-21.16(d) and Adams, 204 N.C. App. at 321, 693 S.E.2d at 709. Respondent's argument is overruled.
N.C. Gen. Stat. § 53-17 (2011) has been repealed by 2012 N.C. Sess. Laws ch. 56, § 4 (effective Oct. 1, 2012) and replaced by N.C. Gen. Stat. § 53C-7-205, which is substantially similar to section 53-17.
B. The Right to Foreclose Under the Instrument
Finally, respondent seems to contend that the lender, Capital Bank, does not have the right to foreclose because the scrivener's affidavit improperly changed the collateral of the North Carolina deed of trust, rendering it invalid. We disagree.
On 12 May 2011, petitioner, via the original trustee and drafter of the October 2006 North Carolina deed of trust, recorded a scrivener's affidavit to give notice of the "corrective information" that the deed of trust incorrectly identified the collateral as "Lot 72 of Bright's Creek," and that the correct lot was Lot 71. The affidavit further noted that while the lot number was incorrectly listed as "72" in the section of the deed of trust providing the property description, the plat book and page reference in the property description were correct, and that Lot 71 was referenced on page 1 of the deed of trust.
Respondent, citing Green v. Crane, Jr., 96 N.C. App. 654, 386 S.E.2d 757 (1990), argues that Capital Bank did not correct a typographical error as contemplated by N.C. Gen. Stat. § 47-36.1 but, rather, improperly changed the collateral of the deed of trust. In Green, the defendant attempted to add the description of a tract of land to a recorded consent agreement by rerecording a revised version of the agreement. Id. at 657, 386 S.E.2d at 759. The revised agreement added the following italicized language to the property description: "Being all of that certain tract or parcel of land more fully described in the Deed recorded in Book 135, Page 677, Avery County Registry, which property specifically includes Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 of Lost Cove Estates Subdivision . . . ." Id. at 658, 386 S.E.2d at 760. This Court concluded that the addition of the italicized phrase was "not the correction of an obvious typographical or clerical error" contemplated by N.C. Gen. Stat. § 47-36.1. Id.
After our decision in Green, N.C. Gen. Stat. § 47-36.1 was amended by our legislature. 2008 N.C. Sess. Laws ch. 194, § 7.(c) (effective Oct. 1, 2008). The current version of the statute, and the version that was in effect at the time the trustee's affidavit was filed, provides for the correction of "typographical or other minor error[s]" in recorded instruments by giving notice of the "corrective information" through the recording of an affidavit. N.C. Gen. Stat. § 47-36.1 (2011).
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Here, the difference between the original recorded deed of trust and the corrective affidavit involves a single character—a " 1" versus a "2" ; these two digits are found immediately next to each other on standard typing keyboards. Thus, we conclude the alteration that was at issue in Green is distinguishable.
Additionally, as noted in the scrivener's affidavit, the following text appears in the title of the North Carolina deed of trust signed by respondent: "71, Bright's Creek, Phase 1, Map 4[.]" We note this is followed by text that states the purpose of the deed of trust is to replace the South Carolina mortgage because that mortgage was recorded on the incorrect form. It does not state that the collateral property was incorrectly described in the South Carolina mortgage, and that mortgage lists Lot 71 as the loan collateral. Thus, a reading of all of the security instruments as a whole evidences the intention of the parties to give and accept only Lot 71 as collateral for the loan, not Lot 72. See Am. Trust Co. v. Catawba Sales & Processing Co., 242 N.C. 370, 377, 88 S.E.2d 233, 238 (1955) ("'When two or more papers are executed by the same parties at the same time, or at different times, and show on their face that each was executed to carry out the common intent, they should be construed together.'" (quoting Perry v. Southern Surety Co., 190 N.C. 284, 291, 129 S.E. 721, 724 (1925)). Defendant's argument is overruled.
In summary, competent evidence exists to support the trial court's findings of fact and we find no error in its conclusions of law. The trial court's order is affirmed.
AFFIRMED.
Judges GEER and BEASLEY concur.
Report per Rule 30(e).