In Matter of Foreclosure of a Deed of Trust Executed, No. COA06-1243 (N.C. App. 8/7/2007)
| Decision Date | 07 August 2007 |
| Docket Number | No. COA06-1243,COA06-1243 |
| Parties | In the Matter of Foreclosure of a Deed of Trust Executed by Charles D. Woodard and Phyllis G. Woodard In the amount of $460,000.00 dated August 7, 1987, recorded in Book 1337, Page 668, Wilson County Registry; James R. Cummings, Sub. Tr. |
| Court | Court of Appeal of North Carolina (US) |
Harvell and Collins, P.A., by Wesley A. Collins, for petitioners-appellants.
Hinson & Rhyne, P.A., by John G. Rhyne and Walter L. Hinson, for respondents-appellees.
Petitioners Anne P. Worthington and Dean W. Worthington appeal from a judgment of the superior court dismissing their foreclosure action. Petitioners had attempted to exercise a power of sale contained in a deed of trust executed by respondents Charles D. Woodard and Phyllis G. Woodard in favor of petitioners. On appeal, petitioners primarily argue that the trial court erred by concluding that respondents had not defaulted on a note secured by the deed of trust. Because the trial court's findings of fact are supported by competent evidence and those findings, in turn, support the trial court's conclusion, we affirm.
Sometime before August 1987, W. Roy Poole agreed to build a building for respondents. In exchange, respondents executed a promissory note in August 1987 in the amount of $460,000.00. The note was payable to Poole's daughter, petitioner Anne P. Worthington, and grandson, petitioner Dean W. Worthington. The note was left with Poole at the law offices of his attorney, Thomas B. Griffin. Petitioners assert that they were unaware of the note's existence at the time of its execution.
Under the terms of the note, respondents were required to repay the principal, along with 12% annual interest, in 180 monthly installments of $5,525.00. The note was secured by a deed of trust on a parcel of real property in Wilson County owned by respondents. The deed of trust included a power of sale in the event of a default and, as with the note, the parties to the deed of trust were respondents and petitioners. Griffin was named as trustee.
In accordance with Poole's instructions, respondents made payments on the note from March 1988 until September 1998 by delivering personal checks, payable to Poole, to Poole's office where they were accepted and deposited. During this time, annual IRS Form 1096s were prepared for each petitioner reflecting receipt of interest from respondents' payments, and petitioners' tax returns also reported the interest as income. Petitioners testified they signed these returns without examining them.
Petitioners assert they first became aware of the note in 1998, during the course of a family "buyout," in which petitioners sold stock they owned in various family corporations to Poole and his son, Anne Worthington's brother, in exchange for various assets. A release signed by petitioners as part of the buy out indicated that Poole and his son were conveying to petitioners "[o]ne account receivable . . . secured by note and deed of trust from Charles D. Woodard in the amount of $139,454.64." The actual note and deed of trust, along with other materials, were delivered to Ms. Worthington in a large box following the buy out. Petitioners did not, however, examine either the note or deed of trust at that time.
In October 1998, Poole instructed respondents to make future monthly payments on the note by sending two checks to Poole's office — one payable to Anne Worthington and one payable to Dean Worthington, with each for half of the monthly amount. Later, respondents were told to send the checks directly to petitioners.
In March 2003, respondents made the 180th payment on the note and, accordingly, the checks to petitioners ceased. At that time, Anne Worthington took the box of documents she had received following the buyout to the office of her attorney, Wesley A. Collins. In the box, Collins discovered the original note, naming petitioners as the payees. In September 2005, petitioners removed Poole's attorney as trustee on the deed of trust and appointed a substitute trustee, attorney James R. Cummings.
Petitioners sent respondents a demand letter dated 12 October 2005, contending that the first payment on the note was actually made when respondents began paying petitioners in October 1998 rather than when respondents first paid Poole. The letter claimed that respondents were, therefore, "in default for failure to make proper payments pursuant to the terms of the Promissory Note." Petitioners stated that they were exercising their "rights of acceleration" under the note and that the payoff of principal and interest totaled $3,307,158.20 plus an average accrual of daily interest in the amount of $1,082.00.
On 3 November 2005, the substitute trustee filed a Notice of Hearing Prior to Foreclosure of Deed of Trust, notifying the Woodards that a foreclosure sale of the real property secured by the deed of trust was scheduled for 10 January 2006 and that they had a right to appear at a hearing on the foreclosure on 14 December 2005. On 16 December 2005, the Worthingtons also each filed a petition before the Clerk of Wilson County Superior Court seeking foreclosure. The clerk entered an order the same day, concluding that the "evidence of default did not meet the burden" and dismissing the petitions. Petitioners appealed to the superior court from the clerk's order.
The matter was heard de novo by the superior court on 27 March 2006. After conducting an evidentiary hearing, the trial court entered an order on 5 June 2006, finding that "[a]ll payments hav[e] been made pursuant to the . . . Promissory Note" and that "there now exists no amount payable under its terms." The trial court concluded that, as a result, there was neither a valid debt nor a default under the terms of the note and dismissed petitioners' foreclosure proceeding. Petitioners have now appealed to this Court.
"A deed of trust gives the note holder a contractual remedy for default, namely a right to foreclose under the instrument." In re Foreclosure of Azalea Garden Bd. & Care, Inc., 140 N.C. App. 45, 51, 535 S.E.2d 388, 393 (2000). In a foreclosure action, the clerk of superior court holds a hearing to determine four issues: (1) the existence of a valid debt of which the party seeking foreclosure is the holder, (2) the existence of default, (3) the trustee's right to foreclose under the instrument, and (4) the sufficiency of notice of hearing to the record owners of the property. N.C. Gen. Stat. § 45-21.16(d) (2005). On appeal, the superior court conducts a de novo hearing addressing the same four issues. In re Foreclosure of Goforth Props., Inc., 334 N.C. 369, 374, 432 S.E.2d 855, 858 (1993).
"The Clerk of Superior Court is limited to making the four findings of fact specified in [N.C. Gen. Stat. § 45-21.16(d)], and it follows that the Superior Court Judge is similarly limited in the hearing de novo." In re Watts, 38 N.C. App. 90, 94, 247 S.E.2d 427, 429 (1978). As the party seeking the foreclosure, petitioners bore the burden of proof on each of the four factual issues. In re Foreclosure of Brown, 156 N.C. App. 477, 489, 577 S.E.2d 398, 406 (2003). On appeal of the superior court's judgment, this Court reviews only "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." Azalea Garden Bd. & Care, Inc., 140 N.C. App. at 50, 535 S.E.2d at 392.
As reflected in both the clerk's order dismissing the petitions and the superior court order on appeal, the key issue in this case is whether petitioners met their burden of establishing that respondents were in default on the note. We find ample evidence to support the superior court's determination that petitioners did not do so.
"[A]n instrument is paid to the extent payment is made (i) by or on behalf of a party obliged to pay the instrument, and (ii) to a person entitled to enforce the instrument." N.C. Gen. Stat. § 25-3-602(a) (2005). To the extent of such a payment, there is no default, and the obligation of the party obliged to pay the instrument is discharged. Id.
In this case, the trial court found that all payments required under the note had been made, that no amount remained due, and that there was no default under the note. Petitioners do not dispute that respondents made 180 payments. They contend, however, that respondents made most of the payments to the wrong person and, therefore, respondents remain liable to petitioners. We disagree.
The trial court's findings reflect a determination that petitioners failed to meet their burden of establishing the debt had not been paid and, therefore, failed to show the existence of a default. See Brown, 156 N.C. App. at 489, 577 S.E.2d at 406 (). See also N.C. Gen.Stat. § 25-3-602(a) (). The record contains sufficient evidence to support such a finding.
As the trial court found and the evidence established, the interest paid pursuant to the note was reported on petitioners' tax returns as well as other tax forms forwarded to the Internal Revenue Service. Ms. Worthington testified that she trusted the certified public accountant who prepared these tax returns and that he had continued to prepare her returns after the family buy out. Further, three of the Woodards' checks were endorsed on the reverse as for deposit to the accounts of Anne and/or Dean Worthington.
Petitioner Dean Worthington also acknowledged that his grandfather kept a ledger card...
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