IN RE FORECLOSURE OF REAL PROPERTY

• Decision Date: 18 March 2003
• Docket Number: No. COA01-838.,COA01-838.
• Court: North Carolina Court of Appeals
• Parties: In re FORECLOSURE OF REAL PROPERTY Under Deed of Trust from Eli Brown and Velvet Brown, in the original amount of $143,600.00, dated October 18, 1999, and recorded in Book 2724, Page 568, Durham County Registry Current Owner(s): Eli Brown and Velvet Brown Lawrence S. Maitin, Substitute Trustee.

577 S.E.2d 398

156 NC App. 477

In re FORECLOSURE OF REAL PROPERTY Under Deed of Trust from Eli Brown and Velvet Brown, in the original amount of $143,600.00, dated October 18, 1999, and recorded in Book 2724, Page 568, Durham County Registry Current Owner(s): Eli Brown and Velvet Brown Lawrence S. Maitin, Substitute Trustee.

No. COA01-838.

Court of Appeals of North Carolina.

March 18, 2003.

Stubbs, Cole, Breedlove, Prentis & Biggs, P.L.L.C., by Terry D. Fisher, Durham, for petitioner-appellee Option One Mortgage Corporation.

Law Offices of Thomas H. Stark, by Thomas H. Stark and John G. Briggs III, Research Triangle Park, for respondent-appellants Eli Brown and Velvet Brown.

ELMORE, Judge.

Respondents Eli and Velvet Brown (collectively, "respondents" or "the Browns") appeal from a 17 April 2001 trial court order authorizing substitute trustee, Lawrence S. Maitin ("substitute trustee" or "Maitin"), to proceed with foreclosure on a deed of trust securing the Browns' indebtedness on certain real property located at 2227 University Drive, Durham, North Carolina ("subject property"). Appellee Option One Mortgage Corporation ("Option One") services the Browns' loan account under a promissory note executed by Eli Brown and secured by the subject deed of trust. Option One is also part of a business entity involving Norwest Bank Minnesota, N.A., which is the holder of the promissory note and subject deed of trust.

Respondents assign error to the admission of testimonial evidence from the substitute trustee, as well as the testimony via affidavit of Option One's assistant secretary, in the trial court proceedings. Respondents also appeal the trial court's denial of their motion to dismiss, argue that the trial court improperly shifted the burden of proof in the foreclosure hearing to respondents, and assert that the foreclosure sale should be deemed defective. For the reasons stated herein, we affirm the trial court's order authorizing foreclosure.

On 18 October 1999, Eli Brown and Tandem National Mortgage, Inc. ("Tandem") executed the promissory note, whereby Tandem extended to Eli Brown a mortgage loan in the principal amount of $143,600.00, plus interest, for the purchase of the subject property. Tandem thereafter transferred its rights as the note holder to "Norwest Minnesota Bank, N.A., as trustee, for the registered holders of Option One Mortgage Loan Trust." Tandem also transferred the deed of trust to Option One. The promissory note contained the following relevant provisions:

7. BORROWER'S FAILURE TO PAY AS REQUIRED

...

(B) Default If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.

(C) Notice of Default

If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of the principal that has not been paid and all the interest that I owe on that amount. That date must be at least 30 days after the date on which the notice is delivered or mailed to me.

...

8. GIVING OF NOTICES

Unless applicable law requires a different method, any notice that must be given to me under this Note will be given by delivering it or by mailing it by first class mail to me at the [subject] Property Address above or at a different address if I give the Note Holder a notice of my different address.

The promissory note was secured by the subject deed of trust, executed by Eli Brown and Velvet Brown on 18 October 1999, and recorded at the Durham County Registry on 19 October 1999. The deed of trust provided in pertinent part as follows:

Borrower irrevocably grants and conveys to Trustee and Trustee's successors and assigns, in trust, with power of sale, the [subject property].

14. Notices. Any notice to Borrower provided for in this [deed of trust] shall be given by delivering it or by mailing it by first class mail unless applicable law requires use of another method. The notice shall be directed to the [subject] Property Address or any other address Borrower designates by notice to Lender.... Any notice provided for in this [deed of trust] shall be deemed to have been given to Borrower ... when given as provided in this paragraph.

...

21. Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower's breach of any covenant or agreement in this [deed of trust] ... If the default is not cured on or before the date specified in the notice, Lender, at its option, may require immediate payment in full of all sums secured by this [deed of trust] without further demand and may invoke the power of sale and any other remedies permitted by applicable law.

The Browns defaulted on their loan by failing to make any monthly payments after the period ending 1 December 1999. Pursuant to the terms of the promissory note and deed of trust, Option One thereafter accelerated the Browns' indebtedness and declared the balance to be immediately due. When no payment was forthcoming from the Browns, Maitin was named substitute trustee and instituted foreclosure proceedings by filing a petition for hearing and notice of hearing with the Durham County Clerk of Superior Court on 21 June 2000. Maitin attempted to serve these papers upon respondents by mailing them to the subject property, addressed to Eli Brown and Velvet Brown individually, via certified mail on 6 June 2000. These certified mailings, which were mistakenly addressed to Eli Brown and Velvet Brown at 2225, rather than 2227, University Drive, were returned to Maitin marked "unclaimed" on 8 June 2000. A return of service, dated 23 June 2000, was thereafter executed by a Durham County Sheriff's deputy with respect to both Eli Brown and Velvet Brown individually, stating that service was effected upon each "[b]y posting the Notice of hearing on the door of [the subject] property, after having first made due and diligent search and not having found the respondents." A foreclosure hearing before the clerk was set for 18 July 2000.

The foreclosure hearing was thereafter continued until 1 August 2000, apparently due to a death in the clerk's family. At the Browns' request, the hearing was subsequently continued until 22 August 2000. For reasons which are unclear from the record, the hearing did not take place on 22 August 2000. On 21 September 2000, Maitin filed an amended notice of hearing, which set the foreclosure hearing for 24 October 2000. Once again, Maitin attempted to serve respondents via individual certified mailings of the amended notice to Eli and Velvet Brown at the subject property address, but these certified mailings, which were properly addressed, were returned to Maitin marked "unclaimed" on 26 September 2000. As was the case in June, a Durham County Sheriff's deputy executed a return of service for each of the respondents on 25 September 2000, stating that the amended notice of hearing was served upon Eli Brown and Velvet Brown "by posting the Amended Notice of hearing on the door of [the subject] property, after first having made due and diligent search and not having found the respondents."

On 24 October 2000, a foreclosure hearing was held before the Durham County Clerk of Superior Court. By order filed on 26 October 2000, the clerk authorized Maitin, the substitute trustee, to proceed with foreclosure on the subject deed of trust. Also on 26 October 2000, a document entitled "Affidavit of Velvet Brown" was filed with the clerk's office, wherein Velvet Brown testified "[t]hat she has not gone on the property which is the subject matter of this proceeding and, therefore, has not seen any posting which may or may not have been located on the real property[.]" On 6 November 2000, respondents filed their notice of appeal to the superior court of the clerk's order, pursuant to N.C. Gen.Stat. § 45-21.16(d1). The superior court hearing was initially calendared for 13 February 2001, but for reasons not reflected in the record, the hearing was not held at that time. The Durham County Trial Court Administrator thereafter notified Maitin and respondents' counsel by mail that the matter had been placed on the 16 April 2001 trial calendar. On 17 April 2001, counsel for the Browns, counsel for Option One, and Maitin appeared for the hearing de novo before the superior court. By order filed 17 April 2001, Judge Hill authorized Maitin to proceed with foreclosure under a power of sale. On 26 April 2001, respondents filed notice of appeal to this Court.

I.

Respondents first assign error to the trial court's decision allowing the substitute trustee, Maitin, to testify "adversely" to respondents. At the superior court hearing, counsel for Option One called Maitin as a witness, and Maitin's testimony on direct examination was strictly limited to his efforts to serve respondents with the notice of hearing and amended notice of hearing. In response to questioning from Judge Hill, Maitin testified as to the existence of a valid debt, default, and existence of a power of sale with respect to the subject deed of trust. On cross examination, counsel for respondents inquired as to Maitin's personal knowledge of (1) efforts to serve the Browns, (2) the existence of a valid debt, (3) the identity of the note holder, and (4) whether there had been a default. Respondents contend that Maitin's testimony was improper because it tended to support the four findings the court must make in order to authorize foreclosure, namely (1) a valid debt, (2) default, (3) right to foreclose under the instrument, and (4) notice to all parties so entitled. N.C. Gen.Stat. § 45-21.16(d) (2001). We find no merit in respondents' argument.

"In deed of trust relationships, the trustee is a disinterested third party acting as the agent of both the debtor and the creditor." In re Proposed Foreclosure of McDuffie, 114 N.C.App. 86, 88, 440 S.E.2d 865, 866 (1994). In a foreclosure proceeding, the...