In re Azalea Garden Bd. and Care, Inc., No. COA99-463.
| Decision Date | 19 September 2000 |
| Docket Number | No. COA99-463. |
| Citation | 140 NC App. 45,535 S.E.2d 388 |
| Parties | In the Matter of FORECLOSURE UNDER THAT DEED OF TRUST EXECUTED BY AZALEA GARDEN BOARD AND CARE, INC., Dated December 28, 1989 and Recorded at Book 1683 Page 740, Forsyth County Registry. See Appointment of Substitute Trustee Recorded in Book 2003 Page 2351, Forsyth County Registry. |
| Court | North Carolina Court of Appeals |
Northen Blue, L.L.P., by J. William Blue, Jr., Chapel Hill, for petitioner-appellant.
Tuggle Duggins & Meschan, P.A., by Robert C. Cone, Greensboro, for respondent-appellee.
The issue on appeal is whether the trial court erred in finding that Azalea Garden Board and Care, Inc. (Azalea) did not default under its deed of trust assigned to WRH Mortgage, Inc. (WRH), and therefore WRH could not foreclose on the deed of trust. Azalea is a North Carolina corporation that owns and operates Brookside Gardens, a rest home in Winston-Salem, North Carolina. Azalea executed a promissory note on 28 December 1989 to First Union Mortgage Corporation in the amount of $2,838,200 and a deed of trust on the rest home real property as security for the note. The promissory note was amended on 22 July 1991 and again on 16 March 1994. The promissory note and deed of trust were assigned to the Secretary of Housing and Urban Development (HUD) on 10 April 1995. HUD initiated foreclosure proceedings in early 1996 after Azalea defaulted on the debt.
Azalea filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Middle District of North Carolina on 24 February 1997 and filed a plan of reorganization on 2 July 1997. WRH purchased Azalea's note and deed of trust from HUD for $1,700,000 on 29 July 1997. In a compromise and settlement agreement effective 1 October 1997, Azalea agreed to satisfy its debt to WRH by: (1) monthly payments of $20,000, beginning on or before 1 November 1997, (2) lump sum payment to WRH of $2,750,000 on or before 31 December 1998, and (3) execution of a new promissory note for $150,000 to be paid over five years, secured by a deed of trust on the real property. Azalea then signed an amendment to the plan of reorganization of the debtor in possession on 8 October 1997, which included a provision that Azalea would execute and deliver to its attorney a deed in lieu of foreclosure on or before 5 November 1997 to be held in escrow by Azalea's attorney for delivery to WRH in the event of a default under the plan of reorganization. WRH voted to accept the plan as amended and the Bankruptcy Court approved the amended plan by an order entered 12 November 1997.
WRH notified Azalea in a letter dated 28 January 1998 that "WRH considers the Debtor to be in default under the applicable agreements, but may be willing to defer the exercise of its remedies without waiving the default under certain conditions." In response, Azalea sought review of its conduct by the Bankruptcy Court by filing a motion requesting a determination that Azalea had complied with its obligations under the compromise and settlement agreement. In a hearing on 24 March 1998, the Bankruptcy Court determined that "the Debtor is in default under the various terms and conditions of the Plan as amended and ... the terms and conditions of the Settlement Agreement were incorporated into the Plan amendment by reference." The Bankruptcy Court concluded in an order dated 1 April 1998 that "WRH is entitled to proceed with foreclosure[.]"
Azalea appealed the order of the Bankruptcy Court to the United States District Court for the Middle District of North Carolina. In a memorandum opinion entered 7 December 1998, the United States District Court determined the Bankruptcy Court had subject matter jurisdiction to enter the 1 April 1998 order, and that "the Bankruptcy Court's factual findings [were] not clearly erroneous and thus must be applied to the law to determine whether a default occurred." The court concluded that there was a default by Azalea under the amended plan and agreement, and that WRH was entitled to foreclose on the property. Azalea appealed to the United States Court of Appeals for the Fourth Circuit, which affirmed the District Court in an order entered 31 May 2000. The Fourth Circuit Court of Appeals rejected Azalea's challenge to the Bankruptcy Court's jurisdiction and Azalea's arguments and noted that Azalea "does not dispute the supporting facts" underlying its decision that Azalea defaulted.
Azalea filed notice of appeal to Forsyth County Superior Court. Following a hearing, the trial court entered an order on 17 September 1998 finding no default by Azalea under the deed of trust and denying WRH's right to foreclose against the real property. WRH appeals from this order.
In its appeal to our Court, WRH argues the trial court erred in finding no default by Azalea under the deed of trust and in denying WRH the right to foreclose. WRH specifically argues the trial court erred: (I) in its findings of fact and conclusions of law that no default had occurred in light of the prior acknowledgment by Azalea that it was in default and other evidence of default; (II) in hearing evidence concerning factual disputes as to whether Azalea had performed its obligations under the compromise and settlement agreement when those disputes had previously been litigated in Bankruptcy Court; (III) in considering equitable defenses raised by Azalea that no default had occurred; and (IV) in finding no right to foreclose existed under the deed of trust in light of the plain language of the deed of trust.
WRH first argues the trial court erred in its findings and conclusions that no default had occurred because Azalea "had previously acknowledged it was in default of its obligations and all of the other competent evidence before the trial court indicated that Azalea was in default of its obligations." WRH further contends that Azalea may not "assert a particular position in an action and then assert a contrary position in subsequent proceedings after having accepted the benefits of its first position."
Prior to 29 July 1997, the day WRH purchased the note and deed of trust from HUD, Azalea had already filed its bankruptcy petition and filed a plan for reorganization. The amendment to the plan of reorganization was dated 2 July 1997, at which time HUD still held Azalea's note and deed of trust. WRH subsequently purchased the note and deed of trust from HUD and executed a compromise and settlement agreement with Azalea effective 1 October 1997. The compromise and settlement agreement expressly states that "the Debtor has sought protection under the provisions of Chapter 11 ... by filing a petition with the United States Bankruptcy Court" and "the note and deed of trust are in default[.]" Knowing these facts, WRH purchased Azalea's debt and created a payment schedule by which Azalea would pay WRH.
The compromise and settlement agreement stated that "the parties hereto have now negotiated, agreed, and announced to the Court a settlement of this dispute whereby, with appropriate further orders of the Court, the claims of WRH will be treated in the manner set forth below." The compromise and settlement agreement further stated that "[i]n the event the Debtor fails to timely pay ... or fails to comply with any other provision of this Agreement ... WRH may proceed with its rights and remedies under the Loan Documents." We are not persuaded by WRH's argument that Azalea is in default under their agreement merely because Azalea was earlier in default on a debt to HUD, a debt that WRH purchased under new terms with a new default provision.
We next determine whether other competent evidence before the trial court indicated that Azalea was in default of its obligations as argued by WRH. Our Supreme Court has stated that the trial court in the appeal of a foreclosure action is to conduct a de novo hearing to determine the same four issues determined by the clerk of court: (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. In re Foreclosure of Goforth Properties, Inc., 334 N.C. 369, 374, 432 S.E.2d 855, 858 (1993). The applicable standard of review on appeal where, as here, the trial court sits without a jury, is 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. Walker v. First Federal Savings and Loan, 93 N.C.App. 528, 532, 378 S.E.2d 583, 585, disc. review denied, 325 N.C. 230, 381 S.E.2d 791 (1989).
The order of the trial court states that "[f]oreclosure of the Deed of Trust is not permissible under Chapter 45 of the North Carolina General Statutes." The trial court's order reviewed the reasons WRH argued it was entitled to foreclose and found that:
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