Foreclosure of Deed of Trust by Goforth Properties, Inc., Matter of
| Decision Date | 22 December 1989 |
| Citation | 334 N.C. 369,432 S.E.2d 855 |
| Parties | In the Matter of the FORECLOSURE OF a DEED OF TRUST Executed by GOFORTH PROPERTIES, INC., a NC Corporation, in the principal amount of $100,000.00 dated |
| Court | North Carolina Supreme Court |
Thomas H. Stark, Durham, for petitioners-appellants.
Maxwell & Hutson, P.A. by James H. Hughes and Lauren M. Mikulka, Durham, for respondent-appellees.
This proceeding was initiated by the substitute trustee's petition for hearing prior to foreclosure sale pursuant to N.C.G.S. § 45-21.16, filed 28 October 1991 in Orange County. After a hearing on 4 December 1991, the assistant clerk of superior court authorized foreclosure. Respondents Birdsall, Price, and Zein appealed pursuant to N.C.G.S. § 45-21.16(d). The appeal came on for hearing at the 21 January 1992 Civil Session of Superior Court for Orange County but was continued on account of the presiding judge's recusal. The parties agreed to waive venue and the matter was heard at the 27 January 1992 Civil Session of Superior Court for Durham County. By his order entered 14 February 1992, the judge concluded petitioners Tenney and Reppy were not entitled to foreclose and vacated the clerk's order. On 20 February 1992 petitioners gave notice of appeal to the Court of Appeals; this Court granted review prior to determination by the Court of Appeals. For the reasons which follow we agree that foreclosure was barred and affirm the order of the superior court.
On 24 April 1981 petitioner Edwin W. Tenney, Jr., and wife, Anita L. Tenney (not a party to this proceeding), and petitioners William A. Reppy, Jr., individually and as trustee, and wife, Juliann Tenney, executed a general warranty deed conveying to Goforth Properties, Inc. (herein "Goforth"), two tracts of land on the southeast corner of Henderson and Franklin Streets in Chapel Hill, North Carolina. As part of the consideration for this conveyance, Goforth executed a purchase money note in the amount of $100,000, payable to Edwin W. Tenney, Jr. or Anita L. Tenney; and William A. Reppy, Jr. or Juliann Tenney. This purchase money note was secured by a purchase money deed of trust of even date in which Goforth conveyed this same property to William Griffin Graves, III, trustee for Edwin W. Tenney, Jr. and wife, Anita L. Tenney; and William A. Reppy, Jr. and wife, Juliann Tenney.
On 2 July 1981 Goforth executed a document entitled "Supplemental Deed of Trust" conveying certain property to the trustee for the benefit of the beneficiaries in the April purchase money deed of trust. Since this document is central to the parties' dispute, we include the following pertinent parts:
This Indenture, made and entered into on this the 2nd day of July, 1981, by and between GOFORTH PROPERTIES, INC., P.O. Drawer 967, Chapel Hill North Carolina, 27514, Party of the First Part; WM. GRIFFIN GRAVES, III, Trustee, Party of the Second Part; and EDWIN W. TENNEY, JR. and wife, ANITA L. TENNEY, WILLIAM A. REPPY, JR. and wife, JULIANN TENNEY, Parties of the Third Part; all of Orange County, North Carolina;
WITNESSETH:
THAT WHEREAS, the party of the first part has heretofore executed to said Wm. Griffin Graves, III, Trustee for the parties of the third part, a deed of trust dated April 24, 1981, and recorded in Book 361, at Page 440, in the office of the Register of Deeds of Orange County, North Carolina, conveying certain lands therein described; and whereas said party of the first part desires to give additional security for said prior deed of trust upon the terms and conditions herein set out;
NOW THEREFORE, said party of the first part in consideration of the premises and of the sum of Ten Dollars and other valuable considerations paid to said party of the first part by said party of the second part, the receipt of which is hereby acknowledged, has bargained and sold and by these presents does bargain, sell and convey unto the said party of the second part, and his heirs and assigns, a certain parcel of land lying and being in Chapel Hill Township, Orange County, North Carolina, and more particularly described as follows:
BEGINNING at an iron stake located in the northwestern intersection of Estes Drive (S.R. 1780) and Seawell School Road (S.R. 1848) ... containing 17.31 acres and known as Phase II, IRONWOODS SUBDIVISION, according to the plat and survey of The John R. McAdams Company, Inc. [,] dated October, 1980.
To have and to hold the aforesaid tract of land, together with all privileges and appurtenances thereunto belonging, to him, the said party of the second part, as Trustee as aforesaid, upon the trust and for the uses and purposes as follows:
If the debt secured by said former deed of trust be paid in full, then and in that event this deed of trust shall become null and void.
If said former deed of trust be foreclosed under the conditions and in the manner therein provided and the net proceeds of such foreclosure, after deducting legal costs and expenses, be sufficient to pay the debt thereby secured, this deed of trust shall become null and void.
If, however, the net proceeds realized f[ro]m a foreclosure of said former deed of trust be not sufficient to pay the debt secured by said prior deed of trust, this deed of trust may be foreclosed in the same manner as therein provided for the foreclosure of said former deed of trust and the net proceeds realized from the foreclosure of this deed of trust may be used by the Trustee as far as the same may be necessary or may extend to the payment of the then unpaid balance of the debt secured by said former deed of trust and the surplus thereafter remaining, if any, shall be paid by the Trustee to the party of the first part or his legal representatives.
On that same day trustee Graves, all the Tenneys, and Reppy executed a deed releasing to Goforth the property conveyed in the April purchase money deed of trust securing the purchase money note.
Sometime after the July transactions, Goforth conveyed Lot 9, Phase II, Ironwoods Subdivision, to respondents Birdsall and Price and Lot 1 in the same subdivision to respondents Zein. Goforth subsequently defaulted on the purchase money note. In July 1991 petitioners Edwin W. Tenney, Jr., William A. Reppy, Jr., and Juliann Tenney, then owners and holders of the purchase money note and beneficiaries of the purchase money deed of trust, executed and recorded a document appointing William J. Bair substitute trustee under the supplemental deed of trust. Pursuant to the supplemental deed of trust Bair sought to foreclose on Ironwoods Lots 9 and 1, petitioning for a hearing as described above.
On hearing respondents' appeal from the clerk's order permitting foreclosure, the superior court judge made written findings of fact and the following conclusions of law:
1. There is a valid debt of which the parties seeking to foreclose are the holders and there has been a default in the repayment of said debt. Proper notice has been given to those parties entitled to such under the provisions of G.S. 45-21.16(b).
2. The plain and unambiguous language of the Supplemental Deed of Trust requires that, before the Supplemental Deed of Trust may be foreclosed, there must be a foreclosure of the purchase money deed of trust and insufficient proceeds realized therefrom to satisfy the purchase money note secured by said purchase money deed of trust. Said provision constitutes a condition precedent to the petitioners' rights to foreclose the Supplemental Deed of Trust.
3. The noteholders[,] having released all of the property described in the purchase money deed of trust, no longer have the right to foreclose pursuant thereto and, therefore, cannot perform the condition precedent. Therefore, the Substituted Trustee has no right to proceed to foreclose pursuant to the power of sale contained in the Supplemental Deed of Trust.
4. The provision of the Supplemental Deed of Trust dated July 2, 1981 quoted above in Paragraph 4 of the Findings of Fact purporting to provide additional security for the purchase money note [is] violative of N.C.G.S. 45-21.38.
5. Petitioners are not entitled to proceed against the property described in the Supplemental Deed of Trust as security for the debt evidenced by the purchase money deed of trust from Goforth Properties, Inc.
On appeal to this Court petitioners' contentions include that the superior court erred in concluding (i) the supplemental deed of trust included a condition precedent and (ii) the provisions of the supplemental deed of trust were violative of the anti-deficiency judgment statute, N.C.G.S. § 45-21.38. We first address the issue of a condition precedent in the supplemental deed of trust.
Article 2A of Chapter 45 of the General Statutes sets out the procedure for sale pursuant to a power of sale in a deed of trust. N.C.G.S. § 45-21.16 (1991). In re Foreclosure of Burgess, 47 N.C.App. 599, 603, 267 S.E.2d 915, 918, appeal dismissed, 301 N.C. 90 (1980). After the trustee's compliance with the notice provisions of the statute, the clerk of court may conduct a hearing for the limited purpose of determining (i) the existence of a valid debt of which the party seeking foreclosure is the holder, (ii) the existence of default, (iii) the trustee's right to foreclose, and (iv) the sufficiency of notice of the hearing to the record owners of the property. In re Foreclosure of Deed of Trust, 55 N.C.App. 68, 71, 284...
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