Michael Weinman Associates General Partnership, In re

• Decision Date: 08 January 1993
• Docket Number: No. 430A91,430A91
• Court: North Carolina Supreme Court
• Parties: In re Foreclosure of Deed of Trust of MICHAEL WEINMAN ASSOCIATES GENERAL PARTNERSHIP.

Page 385

424 S.E.2d 385

333 N.C. 221

In re Foreclosure of Deed of Trust of MICHAEL WEINMAN

ASSOCIATES GENERAL PARTNERSHIP.

No. 430A91.

Supreme Court of North Carolina.

Jan. 8, 1993.

Appeal by petitioner as of right pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 103 N.C.App. 756, 407 S.E.2d 288 (1991), which affirmed a judgment entered for respondent by Griffin, J., at the 20 August 1990 Civil Session of Superior Court, Mecklenburg County. Heard in the Supreme Court 14 April 1992.

Byrd, Byrd, Ervin, Whisnant, McMahon & Ervin, P.A. by John W. Ervin, Jr. and Robert C. Ervin, Morganton, for petitioner-appellant.

Weinstein & Sturges, P.A. by L. Holmes Eleazer, Jr., Thomas D. Myrick and T. LaFontine Odom, Charlotte, for respondent-appellee.

LAKE, Justice.

This case arose upon an application to commence foreclosure pursuant to a power of sale in a deed of trust. It presents directly to this Court, as the essential issue, the extent of authority and responsibility of the Clerks of Superior Court in their consideration and determination of the four elements which must be found to exist under our power of sale foreclosure statute, N.C.G.S. § 45-21.16(d), before foreclosure may commence. The specific portion of the subsection involved in this case is element (iii) the "right to foreclose under the instrument." While this subject has been addressed peripherally, with some inconsistency over the years by the Court of Appeals since the enactment of N.C.G.S. § 45-21.16 in 1975, this issue has not heretofore been considered and determined by this Court.

On 19 June 1987, Michael Weinman Associates General Partnership (Weinman) and North Mecklenburg Associates executed a Contract of Sale in which Weinman agreed to buy from North Mecklenburg 402.67 acres consisting of Mecklenburg County tax parcels, 015-161-13, 015-161-14 and 23-031-08 for $1,409,345 or $3,500 per acre. The exact purchase price was to be adjusted based upon a survey to determine the actual acreage. The parties agreed in thecontract that if Weinman elected to have North Mecklenburg finance a portion of the property, North Mecklenburg would permit Weinman to make a payment of twenty-five percent of the final purchase price at the time of closing, and three successive payments of twenty-five percent at the end of each year following closing, plus accumulated interest at the time of each such payment. The contract further provided:

Should this option be exercised, Buyer agrees to prepare a land use map showing the property being divided into four parcels with equal road frontage.

One parcel representing approximately 25% of the land on one end of the property would be released at closing, and additional contiguous parcels would be released at one year intervals as payments outlined above are made.

Weinman elected to have North Mecklenburg finance a portion of the property in accordance with these provisions of the contract.

At the time of closing on 7 April 1988, North Mecklenburg conveyed to Weinman 399.449 acres by a deed recorded 8 April 1988. The finally determined purchase price of the property bought by Weinman from North Mecklenburg was $1,400,556.50. Upon receipt of the deed, on 7 April 1988, Weinman made a payment of $350,139.13, representing twenty-five percent of the purchase price, and executed and delivered to North Mecklenburg a promissory note in the amount of $1,050,417.37 for the balance of the purchase money, together with a purchase money deed of trust for the property securing said promissory note. Upon acceptance of the initial twenty-five percent payment, North Mecklenburg executed and delivered to Weinman a release of the first tract, Tract 1, from the Deed of Trust. A map of the approximately 400 acres and the areas designated for each subsequent release was agreed to at the time of closing. Tracts 2, 3 and 4 were to be released at the time of each subsequent annual payment. Each of the four tracts was designated in the original map as contiguous and equal in size. The Deed of Trust provided for the release of the remaining three-fourths acreage as follows:

The Beneficiary agrees to release additional tracts of land from the Deed of Trust in direct proportion to principal payments made by the Grantor to the Beneficiary under the Promissory Note which is secured by this Deed of Trust. As to such Releases, the Grantor and the Beneficiary have agreed as follows: Approximately 100 acres of land shall be released on each of the principal payment dates, to wit, April 7, 1989, April 7, 1990, and April 7, 1991.

On 7 April 1989, pursuant to the Contract and the Deed of Trust, a second payment of $444,676.68 was made by Weinman to North Mecklenburg for Tract 2. This payment represented a principal payment of $350,139.12, plus accrued interest through 7 April 1989 amounting to $94,537.56. After making this payment, Weinman never received or was tendered a release of Tract 2, which under the terms of the contract and the Deed of Trust, was agreed to be released simultaneously with the second payment. North Mecklenburg acknowledged this payment by letter reading:

Receipt is hereby acknowledged of Michael Weinman Associates General Partnership check no. 1019, dated April 6, 1989, payable to North Mecklenburg Associates, in the amount of $444,676.68, representing the first payment due as of today on the above referenced Promissory Note. It is understood and agreed that the said check represents a principal payment of $350,139.12 plus accrued interest at 9% on $1,050,417.37 through April 7, 1989, of $94,537.56.

Since the description and measurement of Tracts 2, 3 and 4 on the map had been approximations, a survey was required to obtain an exact description for the release document. Weinman had not completed the legal survey at the time it submitted the second payment. North Mecklenburg stated to Weinman in its letter that when the survey was completed, then Tract 2 would be released.

Weinman failed to make the third payment due 7 April 1990. Under the terms of the Promissory Note, North Mecklenburg notified Weinman by letter dated 23 April 1990 that the Note and Deed of Trust were in default for nonpayment of principal and interest. North Mecklenburg accelerated payment and had a substitute Trustee institute foreclosure proceedings under the power of sale contained in the Deed of Trust. The Notice of Hearing for Commencement of Foreclosure Proceedings stated that the default enabling foreclosure was the failure to make payments of principal and interest as required by the Note and Deed of Trust. Prior to the hearing before the Clerk of Court pursuant to N.C.G.S. § 45-21.16, Weinman presented to North Mecklenburg and the Trustee a release for Tract 2. North Mecklenburg refused to release Tract 2.

On 28 June 1990, at the hearing before the Clerk of Superior Court, Mecklenburg County, the Clerk denied North Mecklenburg's application for authority to proceed with foreclosure under the power of sale in the Deed of Trust, finding the trustee had failed to show he had a right to foreclose on all three tracts, Tracts 2, 3 and 4. North Mecklenburg then appealed the Clerk's ruling to the superior court for a de novo hearing. On the morning prior to the hearing before the superior court, a representative of North Mecklenburg and its attorney checked the records of the Mecklenburg County tax office. They discovered that $1,739.61 of the 1988 ad valorem taxes on a small portion of the approximately 400 acres had not been paid. Before this discovery, neither Weinman nor North Mecklenburg knew of the omission. Ad valorem taxes for 1989 had been paid by Weinman.

The superior court denied North Mecklenburg's Petition For Commencement of Foreclosure Proceedings. The Court of Appeals subsequently affirmed the trial court, ruling that the Clerk of Superior Court and the superior court had the authority to consider the defense raised by Weinman that North Mecklenburg should have released Tract 2 from the Deed of Trust and, therefore, no longer had legal title to Tract 2.

A.

North Mecklenburg assigns as error the trial court's denial of North Mecklenburg's authority to proceed under the terms of the Deed of Trust to conduct a sale pursuant to the provisions of N.C.G.S. § 45-21.1 to .33. North Mecklenburg contends that the Clerk of Superior Court had no authority to determine whether there should have been a release of Tract 2. Thus, the precise issue presented is whether evidence that property is no longer or should no longer be secured by a deed of trust qualifies as a defense which can be considered by the Clerk in making the four findings required by N.C.G.S. § 45-21.16(d).

In 1975, a three judge Federal District Court panel sitting in the Western District of North Carolina declared our Power of Sale Foreclosure Statute unconstitutional. Turner v. Blackburn, 389 F.Supp. 1250 (W.D.N.C.1975). After determining that there was state action in regards to the Fourteenth Amendment, the court in Turner held that the then existing power of sale statute did not provide adequate notice and an opportunity to be heard under the United States Constitution. Id. The court ruled that actual notice to the mortgagor and an opportunity for the foreclosed party to be heard is required to satisfy the Due Process requirements under the Fourteenth Amendment. As a result of the Turner decision, our legislature amended the statute into what is now Chapter 45, Article 21, Section 16 effective 6 June 1975.

Our holding is consistent with the concerns of the court in Turner. To satisfy the requirement that the foreclosed party has the right to be heard, the Clerk of Superior Court should have the authority to determine who has legal title to property about to be foreclosed. In the case sub judice, that determination was made by deciding whether North Mecklenburg should have released Tract 2 as security under the Deed of Trust.

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