Opinion
No. COA15-581
04-05-2016
In the Matter of: Foreclosure of a Deed of Trust Executed by Gordon F. Lucks dated July 14, 2006 and Recorded in Book 4254 at Page 96 in the Buncombe County Public Registry.
Troutman Sanders, LLP, by D. Kyle Deak, for the Petitioner-Appellant Deutsche Bank National Trust Company. Ferguson, Hayes, Hawkins & Demay, PLLC, by James R. DeMay, for the Respondent-Appellee Gordon F. Lucks.
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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. Buncombe County, No. 14 SP 196 Appeal by Deutsche Bank National Trust Company from order entered 30 December 2014 by Judge Bradley B. Letts in Buncombe County Superior Court. Heard in the Court of Appeals 4 November 2015. Troutman Sanders, LLP, by D. Kyle Deak, for the Petitioner-Appellant Deutsche Bank National Trust Company. Ferguson, Hayes, Hawkins & Demay, PLLC, by James R. DeMay, for the Respondent-Appellee Gordon F. Lucks. DILLON, Judge.
Deutsche Bank National Trust Company (the "Bank") appeals from the trial court's order dismissing the foreclosure of a deed of trust executed by Gordon F. Lucks (the "Debtor") with prejudice. Bank contends it provided sufficient evidence to proceed with summary foreclosure and the trial court erred in dismissing the foreclosure action. We agree and therefore reverse the trial court.
I. Standard of Review
"When an appellate court reviews the decision of a trial court sitting without a jury, 'findings of fact have the force and effect of a verdict by a jury and are conclusive on appeal if there is evidence to support them, even though the evidence might sustain a finding to the contrary.'" In re Foreclosure of a Deed of Trust Executed by Rawls, ___ N.C. App. ___, ___, 777 S.E.2d 796, 798 (2015) (citing In re Foreclosure of Bass, 366 N.C. 464, 467, 738 S.E.2d 173, 175 (2013)). "Conclusions of law drawn by the trial court from its findings of fact are reviewable de novo on appeal." In re Rawls, ___ N.C. App. at ___, 777 S.E.2d at 798 (internal marks and citation omitted).
II. Factual and Procedural Background
In 2006, Debtor executed a $225,000.00 note secured by deed of trust on his primary residence. Robert Tucker was named as the trustee under the deed of trust and IndyMac Bank (the lender) was named as the beneficiary. The note was subsequently indorsed in blank.
In this matter, the Bank alleges that Cornish Law, PLLC, is now the substitute trustee (the "Substitute Trustee") under the deed of trust.
Also, the Bank alleges that it is now the holder of the note and, therefore, the beneficiary under the deed of trust. Specifically, the Bank alleges that the IndyMac note was eventually purchased by a mortgage-backed trust, of which the Bank serves as its trustee. Accordingly, the Bank (in its capacity as trustee of the mortgage-backed trust) is the beneficiary under the deed of trust.
In 2010, Debtor stopped making payments on the note.
In 2014, the Substitute Trustee commenced this proceeding by filing a notice of foreclosure hearing pursuant to N.C. Gen. Stat. § 45-21.16. The hearing was held before the Clerk of Buncombe County Superior Court. The Clerk issued an order dismissing the proceeding.
The Bank appealed the Clerk's dismissal to superior court for a de novo hearing pursuant to N.C. Gen. Stat. § 45-21.16(d1). At the superior court hearing, the Debtor refused to stipulate to anything. To prove its case, the Bank introduced a number of documents into evidence and called one witness, Sandra Lyew, an employee of Ocwen Financial Corporation ("Ocwen").
The Debtor did not offer any evidence or witnesses, but moved to dismiss the action for lack of evidence. The court granted the motion to dismiss by order dated 30 December 2014.
Appellant timely appealed the superior court's order of dismissal.
III. Analysis
We hold that the superior court erred in granting the Debtor's motion to dismiss. Specifically, we conclude that the Bank presented substantial competent evidence to show that the Substitute Trustee had the right to proceed under the power of sale contained in the deed of trust.
As the party seeking the foreclosure, the Bank had the burden of proving six elements: (i) the existence of a valid debt; (ii) a default of that debt; (iii) a right to foreclose under the deed of trust instrument; (iv) that proper notice was given to the Debtor; (v) that the notice complied with N.C. Gen. Stat. § 45-102, because the underlying debt was a home loan; and (vi) the debtor was not in the military. See N.C. Gen. Stat. § 45-21.16(d) (2014).
At the foreclosure hearing, the clerk or superior court is allowed to consider not only forms of evidence otherwise permitted by law, but also "affidavits and certified copies of documents[.]" Id. In other words, the General Assembly has provided that the evidentiary rules are slightly more relaxed in the context of a foreclosure hearing than in normal litigation.
Here, the trial court entered an order concluding that Petitioner failed to offer sufficient evidence to show the last four of the six elements. We address the sufficiency of the evidence as to all six elements below.
As to the first element (existence of a valid debt), the Bank presented the IndyMac note which was indorsed in blank. Our Supreme Court has recognized that an indorsement is presumed valid, In re Bass, 366 N.C. 464, 468, 738 S.E.2d 173, 176 (2013), and that "[t]he law presumes that the holder of a note indorsed in blank is its holder in due course[.]" Gulf States Steel Co. v. Ford, 173 N.C. 195, 196, 91 S.E. 844, 844 (1917) (emphasis added).
As to the second element (a default), there was sufficient evidence to show that the Debtor was in default and has remained in default for a number of years. Specifically, the Bank offered a document entitled "Affidavit of Debt." This document is not an affidavit in a legal sense in that it does not bear a notary's verification. Rather, the document is a copy of a business record from Ocwen, the servicer of the Debtor's loan, which was authenticated by Ms. Lyew in her testimony without objection. Further, Ms. Lyew testified without objection that the Debtor's loan was in default. We now turn to the contested elements.
As to the third element (the right to foreclose under the deed of trust), the trial court determined that the Bank failed to produce sufficient evidence. The trial court based its reasoning solely on its determination that certain documents offered by the Bank to establish the identity of the substitute trustee were inadmissible due to a lack of proper foundation and due to hearsay. However, there was sufficient evidence in the record to establish the right to foreclose. Specifically, the Bank introduced a copy of a document entitled "Limited Power of Attorney" from the Bank granting the loan servicer (Ocwen) with the authority to substitute the trustee under the deed of trust at issue. This document is executed by representatives of the Bank and the representatives' signatures are notarized. The Bank also introduced a copy of a document entitled "Appointment of Substitute Trustee," whereby Ocwen appoints the Substitute Trustee (Cornish Law, PLLC) as the substitute trustee. This document has been signed by Ocwen representatives and duly notarized and recorded.
The only basis stated by the Debtor in objecting to the above-described documents was that they were all copies and not originals. The trial court sustained the objections on the basis of lack of "proper foundation and hearsay." We conclude that the trial court erred in its evidentiary rulings. Specifically, we note that Sandra Lyew testified that the Limited Power of Attorney document was an accurate copy and that the original was filed in Charlotte (Mecklenburg County). See N.C. Gen. Stat. § 8C-1, Rule 901(b)(1) (2014) (stating that evidence can be authenticated or identified by the testimony of a witness with knowledge of the evidence). We further note that the Debtor did not object to Ms. Lyew's testimony based on a lack of foundation to show her knowledge; and, therefore, it was error to exclude the evidence on the basis of lack of proper foundation. See State v. Terry, 329 N.C. 191, 196, 404 S.E.2d 658, 661 (1991) (Supreme Court holding that items are deemed authenticated where opposing party fails to "object at trial to any lack of proper authentication"). Further, Rule 1003 allows for duplicates to be offered, unless there is a "genuine issue" raised as to the authenticity of the original or if it would be unfair not to require the Bank to produce the originals. N.C. Gen. Stat. § 8C-1, Rule 1003 (2014). There was no evidence presented at the superior court hearing that either was the case. Finally, we note that our Court has recognized that photocopies of foreclosure-related documents may be considered and that a debtor's "bare statement" contesting the accuracy of the copies "does not serve as evidence that the copies are not exact reproductions." Dobson v. Substitute Tr. Servs., Inc., 212 N.C. App. 45, 49, 711 S.E.2d 728, 731 (2011).
We note that the Limited Power of Attorney has a certification indicating that the document (1) was filed in Montgomery County (as opposed to Mecklenburg County) and (2) was filed several years before the affidavit was executed. Petitioner's attorney indicated this obvious error was due to a mistake of stapling the wrong certification to the Limited Power of Attorney authenticated by Ms. Lyew. In any event, assuming Ms. Lyew's authentication was not sufficient, the trial court could have taken judicial notice of the fact that the Limited Power of Attorney was, indeed, recorded in Mecklenburg County, as sworn to by Ms. Lyew, pursuant to Rule 201 of our Rules of Evidence. Specifically, Ms. Lyew's testimony is a fact "capable of accurate and ready determination." N.C. Gen. Stat. § 8C-1, Rule 201 (2014). Furthermore, our Court has held that it can take judicial notice of a document recorded in a county's deed registry. In re Hackley Foreclosure, 212 N.C. App. 596, 601, 713 S.E.2d 119, 123 (2011).
As to the final three elements of N.C. Gen. Stat. § 45-21.16(d), the trial court determined that the affidavits submitted by the Bank as evidence were inadmissible due to a lack of proper foundation and due to the fact that they were hearsay. The affidavit otherwise tended to prove these elements. However, the trial court failed to recognize that it is free to consider evidence presented in the form of affidavits. N.C. Gen. Stat. § 45-21.16(d) (2014). Indeed, we have specifically held that such evidence, "while inherently weak as a method of proof[,]" is properly admitted where the weakness of the method is "deemed outweighed by the necessity for expeditious procedure [inherent in the setting of a foreclosure hearing]." In re Foreclosure of Brown, 156 N.C. App. 477, 486, 577 S.E.2d 398, 404 (2003). Finally, we note that the Debtor presented no argument or evidence to contradict the information in the affidavits.
III. Conclusion
The burden is on the creditor to produce evidence to establish the six elements enumerated in N.C. Gen. Stat. § 45-21.16(d) in order to proceed with a foreclosure based on a power of sale contained in a deed of trust. The General Assembly, however, has relaxed the evidentiary rules which the creditor must adhere to in proving its case. Here, we hold that the Bank has produced sufficient evidence to establish its right to proceed with foreclosure. Further, the Debtor has not made any argument or offered any evidence to rebut the evidence showing that he has not made a payment in over five years on his home loan or as to the identity of the substitute trustee or of the holder of the note. Accordingly, we reverse the order of the trial court dismissing the foreclosure proceeding based on the insufficiency of evidence. We remand the matter, directing the trial court to consider all the evidence which it is allowed to consider under N.C. Gen. Stat. § 45-21.16(d).
REVERSED AND REMANDED.
Judge GEER concurs and HUNTER, JR., dissents by separate opinion.
Report per Rule 30(e)
HUNTER, JR., Robert N., Judge, dissents.
The majority and Appellant rely upon unauthenticated exhibits to reverse the trial court. The majority contends this is permissible because "the General Assembly has provided that the evidentiary rules are a little more relaxed in the foreclosure hearing setting than in normal litigation." This premise is not supported by citation or case law. Therefore, I must respectfully dissent in favor of affirming the trial court for the following reasons.
As a preliminary matter, the majority states Appellee did not object to Ms. Lyew's testimony for a lack of foundation. This is not factually based. The hearing transcript reveals the following. As Appellant attempted to lay a foundation for Exhibit 4, a limited power of attorney document, Appellant asked Ms. Lyew, "Does Ocwen maintain the original power of attorney at its offices?" She responded, "Yes, Ocwen does." Appellee's counsel objected stating, "Objection. Do you have personal knowledge and personally have seen the original?" The court stated, "Objection is overruled. Counsel object if necessary, but you are not going to ask questions in the middle of another person's case." Appellant's counsel posed the question a second time, and Ms. Lyew confirmed Ocwen keeps original power of attorney documents in its office. Referring to Exhibit 4, Appellant's counsel asked, "To your knowledge is this a true and accurate copy of that limited power of attorney?" Ms. Lyew answered, "That is correct." Appellant's counsel immediately exclaimed, "Objection," and the trial court overruled the objection. Appellant's counsel tendered Exhibit 4 and Appellee's counsel stated, "Objection, Your Honor. The copy given to me does not have the recorded pages. . . . The recording information appears to precede the date of signatory on that instrument." Therefore, contrary to the majority's assertion, Appellant objected to the exhibits for lack of foundation in addition to objecting on the basis that the exhibits are uncertified copies. Further, after reviewing the transcript, this Court notes Appellant failed to elucidate information from Ms. Lyew concerning her job experience, time of employment with Ocwen, professional responsibilities, or any testimony indicating she saw the original documents before they were presented as uncertified copies at the hearing.
Exhibit 4 is a "Limited Power of Attorney," in which Appellant appoints Ocwen as servicer for the loan. Appellant's Assistant Vice President signed the document 21 November 2013, and the document is notarized. The last page of Exhibit 4 is a 14 December 2009 recording page for a limited power of attorney, in which Appellant appoints OneWest Bank, FSB. The document was prepared by Shapiro & Ingle, LLP, recorded 12 February 2010 in "Gaston, NC" with "Susan S. Lockridge Register of Deeds." The page bears another stamp stating, "This document presented and filed: 8/6/2010 . . . Montgomery County, NC." Appellant described this page as a "stapling error." However, the exhibit, as presented at the hearing, is internally inconsistent. Lastly, there is no stamp in Exhibit 4 certifying the exhibit as a true and accurate copy.
The majority overlooks the fact that Appellee contests the authenticity of the exhibits on this basis. Additionally, Exhibits 1, 2, and 3 are original documents and they are not contested on appeal.
The majority disregards clear set precedent in its opinion. Our Supreme Court has held "foreclosure under a power of sale in a mortgage is not favored in the law, and its exercise by the mortgagee will be watched with jealousy." In re Michael Weinman Associates General Partnership, 333 N.C. 221, 228, 424 S.E.2d 385, 389 (1993) (citations and quotation marks omitted). During a power of sale proceeding, "the lender bears the burden of proving four elements that must be established in order for the clerk of court to authorize the mortgagee or trustee to proceed with the foreclosure: '(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 . . . ." In re Adams, 204 N.C. App. 318, 321, 693 S.E.2d 705, 709 (2010) (citing N.C. Gen. Stat. § 45-21.16(d) (2009); In re Foreclosure of Brown, 156 N.C. App. 477, 489, 577 S.E.2d 398, 406 (2003)). On appeal to the trial court, "the judge of the district or superior court having jurisdiction is limited to determining de novo the same four issues resolved by the clerk." Id. (citations omitted). In the case sub judice, all four elements are contested by Appellant.
This Court has outlined two questions that must be answered affirmatively, to "find that there is sufficient evidence that the party seeking to foreclose is the holder of a valid debt . . . ." In re Adams, 204 N.C. App. at 321-22, 693 S.E.2d at 709. First, "is there sufficient competent evidence of a valid debt?" Id. at 322, 693 S.E.2d 709. Second, "is there sufficient competent evidence that the party seeking to foreclose is the holder of the notes that evidence [the] debt?" Id. (citations omitted).
Before answering these questions, this Court notes a defect in the chain of title. The promissory note and deed of trust are made out to IndyMac Bank, FSB. The promissory note does not contain an allonge showing a transfer in title. Likewise, the deed of trust does not contain documentation of title transfer. Exhibit 8, the "notice of transfer" letter to Appellee, suggests loan servicing transferred from "IndyMac Mortgage Services, a division of OneWest Bank, FSB" to "Ocwen Loan Servicing, LLC." However, this unauthenticated letter is not accompanied by any title transfer documentation, and it does not resolve the difference between "IndyMac, FSB" named in the promissory note and deed of trust, and "IndyMac Mortgage Services, a division of OneWest Bank, FSB" named in the unauthenticated letter. The majority resolves this by reviewing the promissory note and stating it is indorsed in blank. The majority cites In re Bass, 366 N.C. 464, 468, 738 S.E.2d 173, 176 (2013) and Gulf Steel v. Ford, 173 N.C. 195, 196, 91 S.E. 844, 844 (1917) for the proposition that we should presume Appellant, as the holder of a note indorsed in blank, is the holder in due course. This is consistent with North Carolina's statutory adoption of the Uniform Commercial Code ("UCC"), which defines a "holder" as "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession." Dobson v. Substitute Trustee Services, Inc., 212 N.C. App. 45, 51, 711 S.E.2d 728, 732, affirmed, 365 N.C. 304, 716 S.E.2d 849 (2011) (Hunter, Jr., J., dissenting) (citing N.C. Gen. Stat. § 25-1-201(b)(21) (2009)) (emphasis in original) (discussing the possession of a photocopied promissory note). However, "'mere possession' of a note by a party to whom the note has neither been indorsed nor made payable does not suffice to prove ownership or holder status." In re Adams, 204 N.C. App. at 323, 693 S.E.2d at 710 (citations omitted) (emphasis in original). The majority's presumption of ownership cannot retroactively carry Appellant's burden of proof and answer questions Appellant failed to ask of Ms. Lyew concerning Appellant's relationship to the parties named in the promissory note, IndyMac Bank, FSB, and Appellee.
Rule 602, of the North Carolina Rules of Evidence states, "[a] witness may not testify to a matter unless evidence is introduced sufficient to support a finding that he has personal knowledge of the matter. Evidence to prove personal knowledge, may but need not, consist of the testimony of the witness himself." N.C. Gen. Stat. § 8C-1, Rule 602. Ms. Lyew testified she works for Ocwen, but she did not describe her position, length of employment, or job responsibilities. Appellant's counsel did not ask any questions or provide any documentation to clarify these points. Ms. Lyew never testified she saw any of the original documents in Exhibits 4, 5, 6, 7, 8, 9, 10, 11, or 12, or the original documents in Exhibits 1, 2, and 3 before they were tendered at the hearing. She did not claim she was involved in drafting or reviewing any of the exhibits, or that she personally knew of the matters contained in the documents.
Under Rule 901 of the North Carolina Rules of Evidence, "every writing sought to be admitted must be properly authenticated." FCX, Inc. v. Caudill, 85 N.C. App. 272, 276, 354 S.E.2d 767, 771 (1987). Authentication or identification is satisfied "as a condition precedent to admissibility" if there is "evidence sufficient to support a finding that the mater in question is what its proponent claims." N.C. Gen. Stat. § 8C-1, Rule 901(a). While a witness with knowledge may testify that a matter "is what it is claimed to be," Exhibits 4, 5, 6, 10, and 11 are all uncertified copies, and Ms. Lyew does not have any personal knowledge regarding the original documents.
Rule 902 states, "[e]xtrinsic evidence of authenticity as a condition precedent to admissibility is not required" for inter alia, "certified copies of public records" or "acknowledged documents." N.C. Gen. Stat. §§ 8C-1, Rule 902(4) and (8). A certified copy of a public record is a "copy of an official record or report or entry therein, or of a document authorized by law to be recorded or filed and actually recorded or filed in a public office . . . ." N.C. Gen. Stat. § 8C-1, Rule 902(4). Rule 902(8) defines acknowledged documents as, "[d]ocuments accompanied by a certificate of acknowledgement executed in the manner provided by law by a notary public or other officer authorized by law to take acknowledgements." N.C. Gen. Stat. § 8C-1, Rule 902(8).
Our Court has held a "certified, true copy" of an affidavit sworn before a clerk of court is admissible under Rule 902(8). See State v. McCoy, ___ N.C. App. ___, ___, 759 S.E.2d 330, 333, review denied, 367 N.C. 791 (2014). However, none of the exhibits at issue are certified as true copies of originals. Ms. Lyew claimed Exhibit 4 was a true and accurate copy, but she did not she have any personal knowledge of the original document to base her opinion on. Our Court has allowed photocopies of a promissory note and a deed of trust in a power of sale hearing in In re Adams. However, an affidavit swore the note and deed in In re Adams were "exact reproductions" of original documents, and the respondent-mortgagor conceded "there is no evidence that the copies of the Note and Deed of Trust . . . were not the exact reproductions of the original instruments." In re Adams, 204 N.C. App. at 323, 693 S.E.2d at 710; see also Dobson, 212 N.C. App. at 51, 711 S.E.2d at 732 (Hunter, Jr., J., dissenting). Also, the note and deed in In re Adams did not indicate there was a chain of title defect like the case sub judice. Therefore, none of the photocopied exhibits are admissible, and they fail to meet the authentication prerequisite of Rule 901.
Appellant contends the exhibits are admissible as duplicates under Rule 1003. Rule 1003 states, "[a] duplicate is admissible to the same extent as an original unless (1) a genuine question is raised as to the authenticity of the original or (2) in circumstances it would be unfair to admit the duplicate in lieu of the original." N.C. Gen. Stat. § 8C-1, Rule 1003. Appellee raised a genuine issue to Exhibit 4, whether the exhibit and its final page are "internally inconsistent" since the document was signed 21 November 2013 and the final page, perhaps erroneously stapled to the exhibit, shows a 12 February 2010 recording date. Moreover, in Exhibit 4, Appellant appoints Ocwen as loan servicer, but the final page states, "[Appellant] Appointing OneWest Bank, FSB[,] Dated December 14, 2009." Additionally, Appellant raises genuine questions about all of the contested exhibits, since none of them are certified copies and Ms. Lyew has no personal knowledge of the original documents. This, taken with this Court's de novo review of the chain of title issues renders the exhibits inadmissible under Rule 1003.
Our precedent places the burden of proof on Appellant to prove all four elements: valid debt, default, a right to foreclose under the deed of trust, and notice. Dobson, 212 N.C. App. at 53, 711 S.E.2d at 733 (Hunter, Jr., J., dissenting). Appellant failed to carry that burden by providing uncertified copies of documents and examining one witness who lacked personal knowledge about many of the relevant documents. A power of sale is disfavored by the law and this Court will watch its exercise with jealousy. In re Michael Weinman Associates General Partnership, 333 N.C. at 228, 424 S.E.2d at 389 (citations and quotation marks omitted). As such, I must respectfully dissent in favor of affirming the trial court.