Harty v. Peter J. Underhill Or Frances S. White Or Kirsten K. Gallant As Trustees For Mortgage Elec. Registration Sys. Inc.

• Citation: 710 S.E.2d 327
• Decision Date: 03 May 2011
• Docket Number: No. COA10–583.,COA10–583.
• Parties: Edward J. HARTY and wife, Margaret L. Harty, Plaintiffsv.Peter J. UNDERHILL or Frances S. White or Kirsten K. Gallant as Trustees for Mortgage Electronic Registration Systems, Inc. and Mortgage Electronic Registration Systems, Inc. and Countrywide Home Loans, Inc., Defendants.
• Court: North Carolina Court of Appeals

710 S.E.2d 327

Edward J. HARTY and wife, Margaret L. Harty, Plaintiffs

v.Peter J. UNDERHILL or Frances S. White or Kirsten K. Gallant as Trustees for Mortgage Electronic Registration Systems, Inc. and Mortgage Electronic Registration Systems, Inc. and Countrywide Home Loans, Inc., Defendants.

No. COA10–583.

Court of Appeals of North Carolina.

May 3, 2011.

OPINION TEXT STARTS HERE

Appeal by plaintiffs from order entered 26 October 2009 by Judge Joseph N. Crosswhite in Union County Superior Court. Heard in the Court of Appeals 13 October 2010.

Clark, Griffin & McCollum, LLP, by Joe P. McCollum, Jr., Monroe, for plaintiff-appellants.

Hunton & Williams, LLP, by A. Todd Brown and Brent A. Rosser, Charlotte, for defendant-appellees.

CALABRIA, Judge.

Edward J. Harty and Margaret L. Harty (collectively, “plaintiffs”) appeal the trial court's order granting Countrywide Home Loans, Inc.'s (“Countrywide”), Mortgage Electronic Registration Systems, Inc.'s (“MERS”), and Peter J. Underhill's, Frances S. White's, and Kirsten K. Gallant's (collectively, “the trustees”), as trustees for MERS (collectively, “defendants”), motion for summary judgment. We affirm.

I. BACKGROUND

In August 2002, plaintiffs obtained a loan from Greenpoint Mortgage Funding, Inc. (“Greenpoint”), to finance the purchase of a home in Monroe, North Carolina. The loan was secured by a deed of trust. By December 2003, plaintiffs were in default. In order to suspend foreclosure proceedings, Greenpoint proposed a “Forbearance Agreement” (“the Forbearance Agreement” or “the contract”) to allow plaintiffs to pay monthly payments toward their arrears.

Plaintiffs executed the Forbearance Agreement, and Greenpoint conditionally suspended foreclosure proceedings based upon plaintiffs' regular monthly payments and payments toward the arrears. Plaintiffs agreed to pay $5,500.00 by 11 December 2003 as well as payments of $1,237.94 per month from 1 January 2004 through 1 December 2004. Greenpoint reserved the right to reject any payment that was not received by the sixteenth day of the month in which the payment was due.

In paragraph 16 of the Forbearance Agreement, the “ Time of the Essence ” clause stated, “TIME IS OF THE ESSENCE WITH RESPECT TO ALL DATES SET FORTH HEREIN” (“the time-is-of-the-essence clause”). If plaintiffs failed to comply with the terms of the Forbearance Agreement, they would be in default. In paragraph 13, the “ Waiver of Notice of Default ” clause stated, “YOU HEREBY WAIVE ANY FURTHER NOTICE OF DEFAULT UNDER THE MORTGAGE OR THIS AGREEMENT THEREBY PERMITTING GREENPOINT TO RESUME ANY FORECLOSURE PROCEEDING UPON THE OCCURRENCE OF A DEFAULT WITHOUT NOTICE.” This paragraph allowed Greenpoint to resume foreclosure proceedings without notice.

Approximately four months after plaintiffs executed the Forbearance Agreement with Greenpoint, plaintiffs' deed of trust was transferred from Greenpoint to Countrywide,¹ subject to the Forbearance Agreement. Terms of the Forbearance Agreement with Countrywide were exactly the same. Plaintiffs were still required to make their monthly payments by the sixteenth day of each month to comply with the time-is-of-the-essence clause.

According to Countrywide, plaintiffs' monthly payments during 2004 were late because Countrywide claimed they were not received until after the sixteenth of the month in which they were due. Even though plaintiffs disputed the timeliness of their monthly payments, Countrywide claimed plaintiffs were in default. Since the Forbearance Agreement permitted defendants to resume foreclosure proceedings without notice, defendants initiated foreclosure proceedings by reporting plaintiffs' default to the trustees. The trustees initiated foreclosure proceedings against plaintiffs in June 2005.

On 5 July 2007, the Clerk of Court of Union County (“clerk of court”) entered an order (“the clerk's order”) finding that the substitute trustee could proceed to foreclosure under the terms of plaintiffs' deed of trust. Plaintiffs continued to disagree with defendants regarding the timeliness of their payments and the amount of their debt. Specifically, plaintiffs disputed the actual amount of their debt owed on the note and deed of trust. Plaintiffs appealed the clerk's order to Union County Superior Court. On 13 July 2007, the clerk of court entered a stay order precluding foreclosure by defendants.

Although the stay order was still in effect, on 23 July 2007, plaintiffs filed a complaint against defendants in Union County Superior Court. Plaintiffs alleged defendants' actions constituted unfair and deceptive practices (“UDP”) and tortious interference with contract, and asserted equitable challenges to the foreclosure under N.C. Gen.Stat. § 45–21.34. The complaint sought damages in excess of $10,000.00 and treble damages. Plaintiffs also sought preliminary and permanent injunctions against the trustees prohibiting them from foreclosing on plaintiffs' property. Pursuant to the allegations in plaintiffs' complaint, the trial court issued a temporary restraining order on 24 July 2007 forbidding defendants from foreclosing on plaintiffs' property.

On 4 October 2007, the parties entered into a consent order (“the consent order”). Under the terms of the consent order, the parties agreed that the temporary restraining order would be dissolved pending the resolution of plaintiffs' appeal of the clerk of court's foreclosure order. If plaintiffs were unsuccessful in their appeal, they would be permitted to re-seek entry of a preliminary injunction pursuant to N.C. Gen.Stat. § 45–21.34.

On 10 July 2009, defendants filed a motion for summary judgment, alleging, inter alia, that plaintiffs failed to forecast evidence necessary to establish claims for UDP, tortious interference with contract, and N.C. Gen.Stat. § 45–21.34. After reviewing the written material submitted by counsel and other relevant matters of record, and after hearing oral arguments, the trial court granted defendants' motion for summary judgment and dismissed all claims against defendants with prejudice on 26 October 2009. Plaintiffs appeal.

II. FORECLOSURE PROCEEDINGS

Our General Statutes govern the procedure for challenging a foreclosure by power of sale. A party may challenge a foreclosure proceeding under either N.C. Gen.Stat. § 45–21.16(c)(7)(d) (2009) or N.C. Gen.Stat. § 45–21.34 (2009). Plaintiffs challenged the foreclosure proceeding under both statutes.

N.C. Gen.Stat. § 45–21.16(c)(7)(d) governs direct challenges to the foreclosure proceeding before the clerk of court. When the trustees initiated foreclosure proceedings, the clerk of court was limited to making the four findings of fact specified in N.C. Gen.Stat. § 45–21.16(c)(7)(d). See Mosler ex rel. Simon v. Druid Hills, 199 N.C.App. 293, 295–96, 681 S.E.2d 456, 458 (2009). To authorize a foreclosure, the clerk was required to find 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, and (iv) notice to those entitled to notice.” N.C. Gen.Stat. § 45–21.16(c)(7)(d) (2009). Since plaintiffs disputed the existence of a valid debt, one of the required four findings of fact, the superior court could consider plaintiffs' appeal of the clerk's Order of Foreclosure de novo. Mosler, 199 N.C.App. at 295–96, 681 S.E.2d at 458. However, equitable defenses, such as the acceptance of late payments, may not be raised in a foreclosure hearing pursuant to N.C. Gen.Stat. § 45–21.16.

In an action to enjoin a foreclosure sale, equitable defenses must be asserted under N.C. Gen.Stat. § 45–21.34. In re Foreclosure of Fortescue, 75 N.C.App. 127, 330 S.E.2d 219 (1985). Therefore, since plaintiffs' complaint alleged, inter alia, that defendants should be enjoined from foreclosing on the property because they waived any irregularities in plaintiffs' payments, plaintiffs also challenged the foreclosure proceeding under N.C. Gen.Stat. § 45–21.34.

Any owner of real estate, or other person, firm or corporation having a legal or equitable interest therein, may apply to a judge of the superior court, prior to the time that the rights of the parties to the sale or resale becoming fixed pursuant to G.S. 45–21.29A to enjoin such sale, upon the ground that the amount bid or price offered therefor is inadequate and inequitable and will result in irreparable damage to the owner or other interested person, or upon any other legal or equitable ground which the court may deem sufficient: Provided, that the court or judge enjoining such sale, whether by a temporary restraining order or injunction to the hearing, shall, as a condition precedent, require of the plaintiff or applicant such bond or deposit as may be necessary to indemnify and save harmless the mortgagee, trustee, cestui que trust, or other person enjoined and affected thereby against costs, depreciation, interest and other damages, if any, which may result from the granting of such order or injunction: Provided further, that in other respects the procedure shall be as is now prescribed by law in cases of injunction and receivership, with the right of appeal to the appellate division from any such order or injunction.

N.C. Gen.Stat. § 45–21.34 (2009).

Plaintiffs rely on Meehan v. Cable, 127 N.C.App. 336, 489 S.E.2d 440 (1997), as the authority for their N.C. Gen.Stat. § 45–21.34 cause of action for an injunction because the statute includes the words, “any other legal or equitable ground which the court may deem sufficient[.]” In Meehan, the plaintiff filed a complaint under N.C. Gen.Stat. § 45–21.34, arguing that the foreclosure on his property should be enjoined because he was not in default. Id. at 339, 489 S.E.2d at 443. Our Court held that the plaintiff's claim was “within the jurisdiction of the superior court in an action pursuant to [N.C. Gen.Stat. § ] 45–21.34.” Id.

Plaintiffs correctly rely on Meehan for their equitable defense; however, the same words in N.C....